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EU's special tax plan for Google, Facebook back at the table in Brussels

Bloomberg/ 06 Nov 18 | 05:34 PM

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A scrap among European Union countries over a proposed tax on tech giants is set to resume on Tuesday, when finance ministers try to strike a balance between luring business and addressing popular discontent about companies not paying their fair share.

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Ministers meeting in Brussels will try to push forward a legislative proposal for a 3 percent levy on the European sales of companies with a global annual revenue of 750 million euros ($853 million) or more, such as Facebook Inc., Alphabet Inc. and Amazon.com Inc. The tech industry has pushed back against the tax, saying it would chill investment.


Spearheaded by France, the plan has met resistance from countries such as Ireland and Sweden, which question the wisdom of the EU going it alone given the global nature of digital services. Complicating things further, the tax risks triggering the ire of President Donald Trump in the midst of a transatlantic trade spat, as most of the affected companies would be U.S-based.


Finance Minister Bruno Le Maire said before Tuesday’s meeting that France is now flexible on the implementation date. That marked a shift in France’s position, as Le Maire had previously pushed for an interim tax that would be in force until a global agreement is reached.


That may bring France closer to the position of Germany, which has signaled that the EU tax should be a fallback option if global talks on a digital tax fail.


“We need unbelievably rapid progress on the international level," German Finance Minister Olaf Scholz said on Monday. “At the moment it does indeed look like we can achieve that, but we need to some extent something on hand, a very clear negotiating instrument that allows us to be in the position to negotiate if that doesn’t happen in the next year, year and a half."


Le Maire said there must be a political decision on the EU tax by the end of the year, and ministers shouldn’t use technical objections to the tax plan as an excuse to avoid their “political responsibilities" to get behind it.


The U.K., often seen as a tech-friendly hub, last month announced plans to introduce its own tax on the largest Internet companies, with the goal of raising 400 million pounds ($521 million) a year. Countries from South Korea to Australia are also closing loopholes that allow companies to re-route profits to lower-tax jurisdictions. Traditional tax rules have failed to capture these companies’ activities, fueling anger from voters disgruntled after years of austerity and meager wage growth.


The idea behind the proposed EU tax is to focus on where tech users are based, rather than where a company places its headquarters. The levy would apply on revenue from “targeted advertising" and “intermediation services," while the tax will be imposed on turnover, irrespective of profit or loss, and won’t be connected to or “creditable" against existing corporate taxes, according to confidential memos circulated among member states and seen by Bloomberg.


Some countries disagree over whether the “sale of user data" should also be taxed, according to an Oct. 29 internal memo circulated to national governments. The Austrian presidency of the Council of the European Union, which represents the interests of member states in the legislative process, is pushing for a deal by year-end.


Governments also disagree on whether the tax should have a fixed expiration date or a review clause linked to global developments, assuming that it’s implemented as an interim measure. All national delegations agree that the tax would be repealed if the OECD or the Group of 20 nations reach a deal for a coordinated solution to tax tech companies, according to one of the documents circulated ahead of the meeting.


Double Taxation


In the run-up to Tuesday’s meeting, some countries also expressed doubts about whether the initiative would violate existing treaties on avoiding double taxation. Adding to the confusion, the legal services of the European Commission, the bloc’s executive arm, and the Council of member states disagree over the legal basis of the tax.


As unanimity is required to pass taxes, the levy could end up being shelved or drawn into negotiations between a smaller group of member states wishing to go it alone.


“Several member states might introduce a tax nonetheless, and create serious distortions in the EU’s single market" said Guntram Wolff, director of the Brussels-based Bruegel think tank. “Better have a European approach rather than patchwork of bad national taxes."


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