EU min­is­ters fail to break dig­i­tal tax deadlock

Gulf Times Business - - BUSINESS -

Euro­pean Union fi­nance min­is­ters failed to agree a tax on dig­i­tal rev­enues yes­ter­day, de­spite a last minute Franco-Ger­man plan to sal­vage the pro­posal by nar­row­ing its focus to firms like Google and Face­book.

The Euro­pean Union’s ex­ec­u­tive arm pro­posed a 3% tax on big dig­i­tal firms’ on­line rev­enues in March, al­leg­ing they fun­nelled profit through states with the low­est tax rates.

The tax re­quires the sup­port of all 28 EU states, in­clud­ing small, low-tax coun­tries like Ire­land which have ben­e­fited by al­low­ing multi­na­tion­als to book prof­its there on dig­i­tal sales to cus­tomers else­where in the Euro­pean Union.

The set­back is a blow to French Pres­i­dent Em­manuel Macron, as his gov­ern­ment had in­vested con­sid­er­able po­lit­i­cal cap­i­tal in the tax.

It is also seen in Paris as a use­ful ex­am­ple of joint Euro­pean ac­tion be­fore EU par­lia­ment elec­tions next year.

In the orig­i­nal Euro­pean Com­mis­sion pro­posal, the tax was in­tended to be a tem­po­rary “quick fix” un­til a broader solution could be found among OECD mem­bers.

But this was op­posed by Ire­land and some Nordic coun­tries, lead­ing French and Ger­man fi­nance min­is­ters to focus solely on on­line ad­ver­tis­ing rev­enues in­stead.

While this met with mis­giv­ings and out­right op­po­si­tion from at least four other min­is­ters at a meet­ing in Brussels, they agreed to keep talking, Aus­trian Fi­nance Min­is­ter Hartwig Loeger, whose coun­try holds the ro­tat­ing EU pres­i­dency, said.

A broader turnover tax on firms with sig­nif­i­cant dig­i­tal rev­enues in Europe would have hit com­pa­nies such as Ap­ple and Ama­zon harder, but the Franco-Ger­man pro­posal would not cover data sales and on­line mar­ket­places. “I con­tinue to have strong prin­ci­pled con­cerns about this pol­icy di­rec­tion,” Ir­ish Fi­nance Min­is­ter Paschal Dono­hoe told his EU coun­ter­parts in a de­bate on the tax.

Com­pa­nies with big on­line ad­ver­tis­ing op­er­a­tions like Google and Face­book would be most af­fected by the Fran­coGer­man pro­posal as they make up the ma­jor­ity of the mar­ket in Europe.

Un­der this pro­posal, the tax would not come into force un­til Jan­uary, 2021 and only if no in­ter­na­tional solution has been found.

Paris and Ber­lin also pro­posed that it ex­pire by 2025 in a move aimed at ap­peas­ing con­cerns that it may be­come per­ma­nent.

The Aus­trian pres­i­dency has been try­ing to reach a deal on the tax by the end of the year, while the Franco-Ger­man pro­posal calls for a deal by March.

“Don’t ex­pect us to solve the chal­lenge of a gen­er­a­tion in a cou­ple weeks or months,” French Fi­nance Min­is­ter Le Maire said, adding the Fran­coGer­man pro­posal could still yield a deal.

Ger­man Fi­nance Min­is­ter Olaf Scholz said tax re­ceipts gen­er­ate by the pro­posed Franco-Ger­man tax would be small, not­ing a sim­i­lar tax planned by Bri­tain was ex­pected to raise around £500mn ($641mn).

The set­back is a blow to French Pres­i­dent Em­manuel Macron, as his gov­ern­ment had in­vested con­sid­er­able po­lit­i­cal cap­i­tal in the tax

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