Sunday

21st Apr 2019

EU leaders set for 'stormy debate' on digital tax at summit

  • The digital tax 'is not an anti-American tax', EU commissioner Moscovici said, amid concerns of a trade war with the US (Photo: European Commission)

EU leaders are set for a confrontation over the taxation of digital companies at their summit on Thursday (22 March), just as the European Commission has put a proposal on the table.

"This promises to be a stormy debate," a European diplomat said.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

On one side, a group of member states led by France are calling for a better EU taxation of digital companies, which currently often bypass rules by locating headquarters in a select few low-tax countries.


On the other side, countries like Luxembourg and Ireland, where taxes are low and many tech companies are based, oppose the idea and argue for a global move within the G20 or the OECD, a rich countries' club.

"There is a tension over financial interests," the diplomat noted.

Thursday's debate, which will be held over dinner, will be a political discussion with no decision and no written conclusions. But it will be crucial in designing the EU's future policies on digital economy.

The sector's revenues, according to the European Commission, are growing by 14 percent each year in Europe, compared to 3 percent for the IT and telecoms and 0.2 percent for other multinationals.

The EU executive also estimates that completing the digital single market would bring €415bn a year to the EU economy.

But Europeans are realising that they are lagging behind in the digital revolution. Besides plans to complete the digital single market and boosting innovation, pressure is also mounting not to let tech companies escape taxation.

Since he launched his campaign for a digital tax last September, French president Emmanuel Macron has argued that "tax has to be paid where it is due, whether online or offline."

Three-percent tax

"We cannot be twice losers: having no European companies able to rival other world companies, and opening our market without taxing," the diplomatic source observed.

Thursday's discussion will include a proposal to tax digital companies' revenues, presented by the European Commission on Wednesday.

Under the proposal, tech companies would be taxed in the country where they have a "significant digital presence".



The significant digital presence in a country would be defined by at least one of three criteria: revenues of more than €7m per year; more than 100,000 users; or over 3,000 contracts for digital services per taxable year between the company and business users.

In the meantime, the commission proposed to create an interim three-percent tax on some digital activities, such as selling online advertising space, selling users' data and putting users in contact to sale goods and services.

The tax, which would be in place until the digital presence tax is introduced, would apply to companies that have a total annual worldwide revenues of €750m, including €50m in the EU.



The threshold would spare the smaller, European start-ups, while platforms such as Uber, the car-sharing application, or Airbnb, the home-sharing service, would fall under the scheme.

'Not an anti-US tax'

The commission estimates that member states could raise around €5bn each year with the tax - an amount that "could increase in time", according to EU tax commissioner Pierre Moscovici.

"Today's proposals are simply about fair rules for all companies," he assured.

 He said that "between 120 and 150" firms would fall under the proposed rules, that the proposal "doesn't target any company or country."

"This is not an anti-American approach, it is not an anti-American tax," he insisted, also rejecting the expression 'GAFA tax', which has been used in a reference to US giants Google, Apple, Facebook and Amazon.

Background hum of steel tariffs

The commission's proposal and the leaders' discussion come at a time of EU-US tensions over steel and aluminium tariffs.

"The question now is not so much over the substance than over the context," a second European diplomat noted. "We want to avoid a link with the [steel and aluminium] trade war."

The proposed digital tax plan is "not a response, not a retaliation" to the US tariffs, insisted Moscovici, adding that is has been "prepared for months and months."

Amid vocabulary like "onslaught" or "crusade" against US firms, critics of an EU digital tax have warned of not opening another front with the Trump administration.

"The OECD is already working on the issue, and the US is around the table," another diplomat noted, wondering if it would be "judicious" to make the discussions more difficult with a "unilateral" tax.

Germany 'will not die for it'

But for those supporters of an EU tax, "waiting that the whole world agree is not an option. It would go too slowly," one of the diplomats pointed out.

 The official noted that France and its allies were "very determinate to move forward."

"Everything is possible, I do not exclude that we hear about 'enhanced cooperation'," he said, referring to initiatives where a group of member states moves forward.

In a common statement on Wednesday, France, Germany, Italy and Spain "welcomed" the commission's proposal and said that "the next step will be to analyse the details in depth".

The cautious tone suggested that Germany may be more reluctant than France, as some diplomats noted in Brussels that Berlin's position will be crucial in tilting the scale.

"The Germans are letting the French leading the debate. They will be happy if the tax is done, and happy too if it's not done," an EU source told EUobserver.

"They will not die for it."

Interview

Nordic-Baltic digital market 'no threat to EU'

'What we want do is add value on top, and do things' such as border controls and free data movement, said Norwegian state secretary Paul Chaffey about Nordic-Baltic digital cooperation.

Opinion

Nordic states urge U-turn on EU digital tax plans

Finance ministers of the EU's three Nordic countries have urged partners to shelve plans to tax large corporations for their digital turnover. The digital economy should be taxed where value is created, they say.

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. Counter BalanceSign the petition to help reform the EU’s Bank
  2. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  3. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  4. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  5. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  6. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  7. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  8. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  9. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  10. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  11. Nordic Council of MinistersNordic commitment to driving global gender equality
  12. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan

Latest News

  1. Romania drafts EU code on NGO migrant rescues
  2. Bulgaria, Hungary, and Malta shamed on press unfreedom
  3. EU drafts $20bn US sanctions list in aviation dispute
  4. Brunei defends stoning to death of gay men in EU letter
  5. US Democrats side with Ireland on Brexit
  6. Wifi or 5G to connect EU cars? MEPs weigh in
  7. How Brexit may harm the new EU parliament
  8. EU parliament backs whistleblower law

Stakeholders' Highlights

  1. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  2. Nordic Council of MinistersNordic talks on parental leave at the UN
  3. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  4. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  5. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  6. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  7. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  8. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  9. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  10. Nordic Council of MinistersNordic ministers take the lead in combatting climate change
  11. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  12. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov

Join EUobserver

Support quality EU news

Join us