EU digital tax could backfire, Paschal Donohoe warns

THE EU’s success as an exporter leaves it vulnerable if tax norms are torn up, which would include creating the digital services tax sought by France and others, Paschal Donohoe has warned.

He denied France had offered to make-up for any tax loss to Ireland to win support for its plan.

“No such offer has been put to me or to the Irish Government,” Mr Donohoe said in Brussels yesterday.

Ireland is among a handful of EU members resisting the push to create an Europe-wide levy on a share of sales of large technology companies. Unlike most corporate tax it would be based on a share of revenue, not profit, and paid in the country where sales are made.

The Finance Minister says if that principal becomes established, it could ultimately backfire – because EU members currently benefit from taxes on companies that make their sales abroad.

“I believe that tax changes that shift the incidence of tax to markets in which the service or good is consumed are difficult for the European Union overall, as an exporting economy,” Mr Donohoe said in Brussels, where he was attending a meeting of EU finance ministers yesterday.

“I think the European Union should take great care in putting in place a measure that shifts the tax point to where the good or service is sold. At the moment the tax model is designed on the basis of where value is created,” he said.

The minister said he agreed that large companies should be better taxed, but that change should be on the basis of global consensus and co-operation through the Organisation for Economic Cooperation and Devemlopment (OECD).

Last week the UK announced its own digital services tax. It will apply a 2pc a year levy on UK digital revenues from April 2020.