Thursday

12th Dec 2019

New EU digital tax to let most US giants off the hook

  • US online retailers such as Apple and Amazon would be excluded from Franco-German plan (Photo: Rami Al-zayat)

US tech giants AirBnB, Amazon, Apple, and Swedish company Spotify look set to get off the hook on new EU taxes, but Facebook and Google are still in the crosshairs.

That was the net result of EU talks so far on a new "digital tax" designed to stop global firms from paying next to nothing in Europe via accountancy tricks, even though they generate billions of euros in profits there.

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  • Google and Facebook not playing fair on online adds, US firm told Margrethe Vestager (Photo: European Commission)

France had pushed for a new three percent tax on all online sales and services in the EU by companies with a global turnover of €750m or more, and online sales of €50m or more in Europe.

Its plan, put on paper by the Austrian EU presidency, needed unanimity to go ahead.

But it was scuppered last week when Ireland, home to Apple's HQ in Europe, and Luxembourg, which has also cut sweetheart tax deals with multinationals, opposed it.

Denmark, Finland, and Sweden also said no, while Germany sat on the fence, amid concern that US leader Donald Trump would retaliate if the EU went ahead and that the new measures might harm growth in the digital economy.

But France and Germany circulated a new proposal as EU finance ministers met in Brussels on Tuesday (4 December).

Their watered-down idea was to impose a three percent tax on revenues from online ad sales only, catching far fewer companies in what their proposal, which was seen by the Financial Times, a British newspaper, called its "minimum common scope".

The Franco-German text urged adoption "without delay and in any case before March 2019", so that the tax could snap into place in 2021 if the OECD, a Paris-based club of wealthy nations, did not table its own rules on the matter by then.

"What matters for France is that there is a legally-binding instrument that can be adopted as soon as possible," French finance minister, Bruno Le Maire, said on Monday.

Paris and Berlin were "working hard" to "pave the way for a consensus on the digital services tax", he added, amid violent protests in France against financial inequality and globalisation.

The original French proposal was expected to rake in €5bn a year in extra income for EU capitals.

The watered-down Franco-German one did not mention a figure.

But the likes of Apple and Amazon are unlikely to get away with paying nothing extra, amid plans in the UK and other EU states, including Italy and Spain, to impose new national-level taxes.

The UK digital services tax is to claw back €450m a year, British finance minister Philip Hammond has said.

Anti-trust threat

Taxation aside, Facebook and Google, the two biggest online advertising giants, might also face new EU anti-trust action.

The threat comes after Brave Software, a small US firm which makes an ad-blocking browser, filed a complaint with EU competition commissioner Margrethe Vestager.

The online ad market was "opaque" and prone to being "distorted by severe concentration issues, and perhaps by anti-competitive behaviour", the firm said in a letter, seen by the Bloomberg news agency, calling for an EU inquiry.

Tech giants also "create barriers to entry for existing and potential competitors and create a serious competition issue" by gaining an unfair advantage from the user data that they own, Brave Software added.

Vestager has already hit Google's 'Alphabet' ad service with €6.7bn of fines in a previous probe and is close to another decision on its 'AdSense' service.

She has also gone after firms such as Amazon, Apple, and McDonalds in Ireland and Luxembourg on grounds that their tax deals constituted illegal state aid.

EU banks cheat taxes too

The EU finance ministers will, also on Tuesday, urge Italy not to break EU fiscal rules by overspending on welfare.

They plan to adopt new anti-money laundering measures after Denmark and Germany's top lenders, Danske Bank and Deutsche Bank, got involved in a €200bn dirty money scandal.

But EU banks are also guilty of helping wealthy clients to dodge taxes, according to a recent investigation into so-called "cum-ex" trades, which enabled customers to claim back €55bn in false refunds between 2001 and 2016.

The affair, which dwarfs France's original €5bn digital tax, involved Germany's Commerzbank, Hypovereinsbank, Landesbanken, and Warburg Bank, British lender Barclays, and French bank BNP Paribas, among others.

It is currently the focus of a European Parliament probe, but has yet to make the agenda in the EU Council, where member states meet.

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