Malta criticises EU efforts to impose heavier taxes on tech giants

EU efforts to impose heavier taxes on Google, Amazon and other tech giants are gathering momentum, even as some countries including Malta have expressed misgivings about a French plan to target their turnover.

Paris has built a growing coalition of support for its plan for a new EU law that would allow governments to impose a levy on internet giants’ revenues as an alternative to a traditional corporation tax on profits. A total of 10 countries have now signed a letter backing the scheme, including Germany, Spain, Italy, and Portugal, while several others indicated support at a meeting of EU finance ministers in Tallinn.

The European Commission will present a policy paper in the coming days, described by officials as a “scoping exercise” to shed light on the low tax contribution of tech companies and the ways in which their activities escape conventional tax systems

But the measure would require unanimous backing from capitals to be adopted, and a number of ministers, as Jim Brundsen wrote on the Financial Times, made clear their misgivings, saying such a radical change in the tax base could only be agreed on at global level.

Ireland, Malta and Cyprus emerged as the staunchest critics of the plans at the meeting, with Denmark, the Czech Republic, Luxembourg, and Sweden also making clear that they have reservations.

At a Pre Budget business breakfast event last week, Finance Minister Edward Scicluna reported about the developments happening within the European circles, namely within ECOFIN, whereby France and nine other countries, are pushing their agenda to introduce a quick fix measure whereby businesses operating in the digital economy, will be charged a corporate tax based on turnover rather than on profits generated from that activity.

Minister Scicluna stated what he said in his intervention on the same subject matter during the ECOFIN meeting of EU Miinisters hald late the previous week in Tallinn, Estonia. Minister Scicluna’s intervention was that ”given the global aspect of digitalisation of our economies and the work that is already being carried out within the OECD on this matter, we are of the view, that any action emanating from the EU should be directed at reinforcing the said work that is being carried out by the OECD. So called “quick fix” solutions taken on a unilateral EU basis should be avoided, particularly where this could end up damaging EU companies. In view of this, EU solutions in this area should apply on a broader scale, and if solutions are found, then these should serve as input into OECD global discussions.”

Kristian Jensen, Denmark’s finance minister, told reporters that he was “rather sceptical,” adding that if higher taxes are imposed on the digital economy in Europe “then I think our citizens will just use digital solutions from elsewhere.”

EU chiefs intend that intensive negotiations will take place over the coming months on tax measures targeted at the digital economy. International tax rules are just not fit for the digital economy

Estonia, which holds the EU’s rotating presidency, has pledged to press ahead with finding solutions to better tax the sector, saying that traditional tax systems are struggling to adapt to companies whose business model and lack of “bricks and mortar” infrastructure makes it hard to identify where they make their profits.

The issue has been pushed up the political agenda by the LuxLeaks tax scandal, where tech companies featured prominently among multinationals found to be playing national tax systems off against one anoth- er to slash their tax bills.

The scandal led the EU to launch numerous probes into companies’ arrangements, including one that ended in Brussels calling on Apple to pay a €13bn back-tax bill to Ireland.

Tallinn is aiming to secure agreement from capitals by the end of this year on a policy statement identifying options for action, while the commission has also committed to come forward with draft legislation by the end of 2018. EU leaders are set to discuss the issue later this month.

A key faultline between member states is whether to opt for a quick fix at European level, such as the French plan, or to only focus efforts on a longer-term, international solution, such as a deal on virtual permanent establishment rules that would make it easier to tax tech companies even where they do not have physical presence.

Proponents of a quick fix argue that it could be withdrawn if and when a more comprehensive solution is reached, and that it could spur work within the G20. “Everybody was of the opinion that we have to find a solution,” Estonia’s finance minister, Toomas Toniste, told reporters after the meeting.

The push for a turnover tax is turning into an early test of whether, following the election of French president Emmanuel Macron, a revived Franco-German engine can drive forward the next stages of European integration. Tax, with its requirement for political unanimity, presents a particular challenge for efforts by Paris and Berlin to launch new European initiatives.

“Europe cannot be kicked around,” French finance minister Bruno Le Maire told reporters after the meeting, while acknowledging that securing an agreement on the details of the turnover tax will be “ferociously complicated.” Brussels and EU capitals have so far advanced a number of different ideas for how to tackle the problem.

In addition to the turnover tax, they include establishing pan-EU rules for identifying where digital companies book their profits — a so-called “digital common consolidated corporate tax base.”

Meanwhile, reference is made to last week’s report on the Pre Budget Business Breakfast event held in Valletta. It is to be clarified that any proposal put forward by Government is to combat tax evasion. Minister Scicluna was talking about measures that are in place and will be further strenghtened to combat tax evasion.