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21st Jul 2018

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.

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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."

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