The EU’s digital tax is dead, long live the OECD’s plans

Ireland, Sweden and Denmark are set to maintain their opposition to the EU’s digital tax next Tuesday, forcing finance ministers to kill the European solution and focus instead on the OECD’s ongoing work to levy digital companies.

Following a year and a half of intense discussions and various proposals, the EU’s digital tax will face its ultimate test next Tuesday.

The Ecofin Council will discuss whether there is still hope to reach a unanimous endorsement among the 28 member states on how to make Facebook, Google, Amazon and others to pay their fair share of taxes.

Despite the strong support by the European Commission and the European Parliament, the decision of around half of the member states to introduce a similar levy and the Franco-German’s last-ditch effort to reach an agreement by limiting the scope of the tax, Ireland, Sweden and Denmark still reject the European solution, diplomats from the three countries told

The reasons vary. But the three of them consider that it is time to move on and focus on the efforts at an international level led by the Organisation for Economic Co-operation and Development (OECD).

The Commission proposed last March to apply a 3% rate to online advertising, digital intermediary activities, including social platforms or e-commerce; and the sale of data.

It was expected to collect around €5 billion per year.

In order to reach the necessary consensus, Berlin and Paris narrowed the scope last December to cover only online advertising revenue.

But the three countries still oppose to the watered-down version.

Ireland considers that profits, and not revenues, should be taxed. However, this would decrease further the already limited income expected from the Franco-German version.

Double taxation

Denmark “shares the goal of having effective taxation for the digital sector”, a diplomat said.

However, the country is concerned about potential lawsuits that could be filed from third country partners, as the country considers that an EU digital tax could go against double taxation conventions.

Copenhagen also holds some reservations related to the implementation of the European solution and considers that, ultimately, it could hurt export-led economies.

Sweden continues to disagree with the proposal on how it stands, and prefers to broaden the picture to work at the OECD level.

”Digital taxation is a global issue and the work within the EU should not precede the discussions being held within the OECD,” the Swedish minister of Finance, Magdalena Andersson said.

Despite the strong opposition of these three countries, diplomats backing the European digital tax and EU officials hoped to find some flexibility among these countries on Tuesday to maintain the European initiative alive.

“Efforts at every level are made to convince them,” a senior official from a member state defending the EU digital tax said.

France and the European Commission led the EU effort since the idea was first discussed in September 2017.

Despite the EU executive’s plan failing to reach unanimous support, the Commission did not want to concede defeat.

The institution considered that it succeeded in setting the agenda by being ahead of the curve and by pushing forward the debate at a global level, including at the G20.

The Commission proposal was considered as an interim solution until the OECD reaches an agreement on an international digital tax.

Keep momentum

The “momentum achieved in the EU should help to find international consensus on long term-solutions,” a Commission spokesperson said.

“Our ultimate goal and the preferred solution has always been to find a stable and global long-term solution to how the digital economy is taxed,” he added.

The Commission official said that they are “encouraged by the progress being made” at the international level.

As the blockade of Ireland, Sweden and Denmark seemed unbreakable, France pushed for an international solution among key partners, especially the US.

Despite most of the companies affected by a digital tax are US-based, the Donald Trump Administration is willing to discuss an international solution to levy these firms.

French minister Bruno Le Maire discussed the digital tax when he met with US Secretary of Treasure Steve Muchin last month.

Referring to the digital tax, OECD Secretary-General Ángel Gurría said in January that “the conditions exist to lay the foundations for an agreement this year that could be approved and enter into force in 2020.”

Over the past months, various EU governments including France, Spain and Austria decided to introduce a digital tax along the same lines of the Commission proposal.

These countries said that their national scheme would end once there is an OECD-based solution in place.

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