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24th Jan 2021

EU divided on how to tax internet firms

  • "We have to move quickly and in a determined manner" to tax internet companies, said Estonian minister Toomas Toniste. (Photo: OZinOH)

EU countries have signaled their willingness to tax internet firms more, but are divided on how to do it.

At a meeting in Tallinn on Saturday (16 September), EU finance ministers have agreed to "move forward swiftly" and design possible mechanism by the end of the year.

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But as two different proposals have garnered different levels of supports, a handful of countries have expressed doubts about the whole idea.

"I hope it's not another FTT," Malta's Edward Scicluna told journalists, referring to the financial transaction tax, which was a plan pushed by ten countries and has been stuck in discussions.

"To have a different basis for taxation is a very complicated issue, Luxembourg's Pierre Gramegna said, adding that the EU would also need to "convince the G20 to do the same".

He insisted that the issue should be taken "globally rather than partially", because it involves the US and China.

Other countries like Ireland, the UK, Denmark, Sweden or the Czech Republic are also wary of a new mechanisms to tax internet companies.

"It's true that different thoughts were poised," admitted Estonia's Toomas Toniste, who chaired the meeting. But he insisted that he "couldn't hear any voices being against this approach that we shouldn't improve efficiency and find common solutions."

Estonia, which holds the rotating EU presidency, has proposed a plan to tax profits on internet companies where they are made, rather than where the companies are registered. It said that more than 20 countries have backed the plan.

Tech giants - such as Google, Apple or Facebook - currently pay very small amounts of tax in countries with low tax rates, in which they register a large part of their business operations.

The other proposal on the table was put forward by France, Germany, Italy and Spain last week, with the idea to tax turnover of companies in the countries where they make their revenues.

In Tallinn, the four countries were joined by six others: Austria, Bulgaria, Greece, Portugal, Romania, and Slovenia.

In a common letter, they argued that "economic efficiency is at stake, as well as tax fairness and sovereignty."

While taxing profits and turnover appear to be rival ideas, ministers are considering them as two complementary solutions in time, with the turnover taxation being a temporary solution.

"Proponents of a quick fix are also the supporters of the Estonian, the long term solution, and they are ready to abandon the quick fix once it's no longer needed," noted Dmitri Jegorov, the Estonian deputy secretary-general for tax and customs policy.

Ministers discussed the possibility of using the common corporate tax base (CCTB) and the common consolidated corporate tax base (CCCTB), which are two schemes to harmonise tax rules between EU countries, as a way of introducing a new tax on internet companies.

But both the CCTB and CCCTB are still being discussed by member states, with countries such as Malta, Ireland and Luxembourg wary of reducing the attractiveness of their tax systems.

In a statement after their meeting, ministers said that they agreed to "reach a common understanding" by December.

"We have to move quickly and in a determined manner," Estonia's Toniste insisted.

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