Digital services tax

German business mobilizes against EU digital tax

Olaf Scholz
Mr. Scholz has received a strongly-worded letter. Source: DPA/Gregor Fischer

Germany’s leading industry association, the Federation of German Industries, or BDI, has strongly condemned the European Union’s proposed digital services tax.

The plan, advocated by the European Commission and the French government, would impose a 3 percent Europe-wide levy on sales by companies with a global revenue of at least €750 million ($853 million) and online sales of €50 million within the EU. It would hit the 115 biggest Internet companies, including Google and Facebook.

The proposed tax is highly unusual, as it would target sales rather than profit, but would be temporary, pending a global agreement on a tax mechanism on online profits, as internet giants are accused of transferring the profits they generate within Europe away from the EU tax man. If the motion passes, the levy could generate around €5 billion.

But in a letter written to German Finance Minister Olaf Scholz and the EU’s finance commissioner, Pierre Moscovici, the BDI condemned the tax, saying it would damage German industry and hamper its own efforts to adopt digital business models. The lobby group urged Berlin to oppose the imposition of any such tax on a European level.

Earlier this week, the finance committee of the United States Senate wrote a similarly tough letter to the European Commission, saying the proposed digital tax had been “designed to discriminate against US companies and undermine the international tax treaty system, creating a significant new trans-Atlantic trade barrier.” On Thursday, US Treasury Secretary Steven Mnuchin also issued a statement urging the EU to give up on what he called “a unilateral and unfair gross sales tax that targets our technology and internet companies.”

The BDI letter puts renewed pressure on Mr. Scholz, who finds himself in a tricky political position. He shares many of the BDI’s reservations on the measure, but there is strong support for it in his own party, the center-left Social Democrats.

Retaliation from Washington

His French colleague, Bruno Le Maire, is also pushing hard to introduce the measure, sometimes known as the “GAFA tax,” for its impact on Google, Apple, Facebook and Amazon. Speaking at the European Parliament this week, Mr. Le Maire said he would like to see a new law passed “within 60 days.”

As well as the French government, the tax is backed by the Austrian government, which currently holds the presidency of the European Council. They claim to have the support of 20 of the European Union’s 28 member states. But European opposition remains. Last month, Ireland, Sweden, Finland and the Czech Republic raised concerns that the new tax would violate the EU’s existing bilateral tax treaties. They also fear possible retaliation from the US, and Mr. Mnuchin’s words may do little to allay these concerns.

Mr. Scholz has not rejected the new tax outright but has been keen to propose a possible compromise, centered on a separate proposal: a global minimum rate of corporation tax, combined with strict measures to prevent companies hoarding profits offshore to avoid taxes.

In its letter, the BDI gave a cautious welcome to Mr. Scholz’s proposal, saying it was “a possible tax policy response to the consequences of ‘digitalization’ if it leads to legal certainty and fair taxation.” But it insisted that the measure should replace, rather than supplement, the digital tax.

This is precisely the point of disagreement with Mr. Le Maire, who insists that both proposals must go forward together. Both the European Commission and the French government are determined that measures on tax evasion should not delay or prevent implementation of the digital tax. Mr. Le Maire meets Mr. Scholz in Berlin on Friday to attempt to find a way forward on the issues.

Martin Greive is a correspondent for Handelsblatt based in Berlin. To contact the author: greive@handelsblatt.com

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