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

The Irish Times - Business - - FRONT PAGE - LARA MARLOWE in Brus­sels

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.

Dou­ble tax­a­tion

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.”

Sup­port

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.

Im­ple­men­ta­tion

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.

Op­po­nents

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

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