Ireland remains opposed to EU digital sales tax
Minister says directive, supported by Austria and France, could result in double taxation Germany wants EU to delay tax until OECD report due in summer 2020
Ireland remains opposed to a digital sales tax for the European Union while Germany wants to delay a decision until a new report by the Organisation for Economic Co-operation and Development is delivered in the summer of 2020.
Minister for Finance Paschal Donohoe firmly expressed Ireland’s opposition to the directive, which has been proposed by the EU Commission and is strongly supported by the Austrian presidency and France. “This is a proposal I am not in a position to support,” Mr Donohoe said. He particularly feared creating a precedent where tax would be levied at the point of consumption. “That would hurt small, open economies. We are net exporters,” he said.
Germany’s finance minister Olaf Scholz said it wants to wait for the OECD report. “We commit to transposing that [OECD report] into EU law as soon as it is ready,” he said.
The German position, that the EU should wait for an OECD decision on digital tax, is virtually identical to Ireland’s stance. Under a compromise proposed yesterday by the French finance minister Bruno Le Maire, the EU would formally adopt the digital sales tax directive at its December meeting, but the directive would not take effect for two years. It would only then take effect if agreement and implementation of an OECD initiative was not achieved by then.
The French also promised to address technical concerns about how the directive is implemented. “Technical difficulties must not be a pretext for an absence of political will,” said a high-ranking French official. French and Irish officials do not agree on the number of countries who still oppose the digital sales tax directive. A French official said while Germany is not yet ready to support the directive, only Ireland, Denmark and Sweden remain firmly opposed.
Mr Donohoe said the directive could result in double taxation. The French official said the digital levy would be deducted from corporation tax. He also said that other sectors such as automobiles and chemicals would not be affected.
Sweden and Denmark reject the tax on “political and ideological grounds”, the official added, whereas Ireland’s opposition was “practical and technical”.
“If today Germany says Yes to the directive, it will be adopted in the hour that follows,” the French source continued. “I think Ireland has understood there will be a digital tax, and they will follow the movement. Paschal Donohoe talks to the internet giants. They have understood it’s not a major obstacle and it’s not a huge tax.”
Asked whether Ireland could support the French compromise, Mr Donohoe said: “We have many other countries who have articulated similar concerns today in relation to the proposal from the commission. We will engage with the commission on this proposal.”
Germany has twice committed to a directive on digital tax, the high-ranking French source said in a letter signed by the former finance minister Wolfgang Schauble, and in the Mesenburg declaration last June. If necessary, France will demand Mr Scholz respect Germany’s commitments.
The debate over the digital sales tax has deepened French disquiet over political discord in Germany, and the fact Angela Merkel’s CDU is growing at the same time more economically liberal and more conservative. “Before, the Germans were strong and the French were weak. That situation has been reversed. I am worried about the Germans’ incapacity to decide. Angela Merkel and Olaf Scholz are saying to us, ‘I want to, but I can’t’.”
The Austrian finance minister Hartwig Löger is confident Ecofin will approve the tax next month. He said the technical and political doubts raised by some ministers should be alleviated by a “sunset clause” that would make the directive temporary until the OECD reached a global solution.
Germany’s finance minister, Olaf Scholz, had long conveyed reservations about the European Commission’s proposed directive for a digital sales tax (DST), which would place a 3 per cent levy on online advertising, most of which goes to Google and Facebook, and on online sales such as for Amazon.
Scholz finally stated a clear position at the Ecofin meeting yesterday, when he proposed that the European Union wait for a report on digital taxation by the Organisation for Economic Co-operation and Development, which is due in the summer of 2020.
The commission, the Austrian presidency and France, which has led the drive for a DST, hope to pass the directive at the December Ecofin.
It is possible that Scholz’s Monday-night dinner with the eight-member “Hanseatic League” – comprising the Nordic and Baltic EU members plus the Netherlands and Ireland – influenced him.
In any case, the mood yesterday morning had swung in favour of the anti-directive camp.
There was a catch, though. Scholz said that if there was not a broader international agreement on digital taxation, Germany would accept a European tax.
That created the opening seized by the French finance minister Bruno Le Maire.
If Ecofin would vote the DST directive next month, implementation could be suspended for two years, during which the EU rule might be rendered unnecessary by an OECD initiative.
France also promised to clear up misgivings on the part of Ireland and others regarding technical details of the tax.
The way the French tell it, there are only three remaining holdouts against the digital tax: Ireland, Denmark and Sweden. The Austrian presidency said 10 countries support the DST, which seems to imply that 18 others do not.
The Irish usually estimate the number of opponents at eight. In yesterday’s debate, many took an ambiguous stand, the Dutch finance minister Wopke Hoekstra, for example. “The digital economy is there whether we like it or not,” Hoekstra said. “We like it a lot . . . we are trying to achieve the right balance. We ultimately prefer a global solution through the OECD. We are also open to an interim solution. It is more viable to have something done by the EU than 28 different regimes.”
The UK, Spain and Italy have announced they will establish national digital taxes. The need to avoid fragmentation of the EU is a strong argument for the French compromise.
Ireland tends to see the issue in economic terms, and is reluctant to raise tension with the US over trade. The French see it as a test of European power and volition, and relish confrontation with the digital giants.
The French also believe it is essential that Europe tax the internet companies to satisfy public opinion. That argument was expressed by the Greek finance minister Euclid Tsakalotos. “European citizens always have the impression that when there is a choice between competitiveness and fairness, competitiveness wins,” he said.
France’s “nuclear option” would be to remind Germany of its previous commitments to an EU digital tax. If Germany caves, the French say, they are confident Ireland, Denmark and Sweden would follow. Ireland’s “nuclear option” would be to veto the directive. Both countries hope it won’t come to that.
Ireland tends to see the issue in economic terms, and is reluctant to raise tension with the US over trade