by Julie Martin, MNE Tax
Germany and France which, along with Italy and Spain, first floated the idea of temporary EU-wide digital services tax, have offered a compromise proposal to gain the support of Ireland, Sweden, and Denmark.
Speaking at today’s Economic and Financial Affairs Council meeting, German and French finance ministers said they seek to reach political agreement among the EU states by December to implement a digital services tax that would take effect only if an OECD-led effort to achieve worldwide consensus on digital economy taxation fail. The original plan was to impose the digital services tax immediately and later remove the tax if the OECD succeeded in attaining worldwide agreement.
Olaf Scholz, Germany’s finance minister, explained that Germany is committed to the OECD effort, which will culminate in a report due summer 2020. “At the same time, we agree today that we will implement a revised Commission proposal on the taxation of digital services if, against our expectations, a broad international consensus cannot be reached by summer 2020,” Scholtz said.
The German minister added that “a very good approach” would be to agree by this December about what the digital service tax would look like should global agreement not be reached. He added that Germany opposes aspects of the Commission’s March digital services tax proposal concerning taxation of sales of data and the internet of things and would like to see the Commission proposal modified in this regard.
Similarly, France’s finance minister, Bruno Le Maire, said that EU should adopt the Commission’s digital services tax directive at its December meeting and agree to only implement if the OECD initiative fails. Le Maire told the Financial Times that this is France’s last concession on an EU-wide digital services tax.
Irish finance minister Paschal Donohoe explained said his country’s opposition to a digital services tax stems, in part, because of the bad precedent it would set for exporting and service economies. The proposal links taxing rights to the location of consumption to the detriment of countries such as Ireland, he said. Donohoe said the best way to resolve the digital taxation controversy is through an OECD-led global agreement.
Similarly, Sweden’s finance minister, Eva Magdalena Andersson, said that issues of income allocation should be left to global agreement. Any proposal that confers taxing rights to users benefits countries with lots of users, not small exporting countries like Sweden, she said.
Meanwhile, EU states have begun to propose unilateral digital services tax measures. In October, Spain presented a proposal for a new digital services tax on large tech companies. Last week’s UK budget included a digital services tax proposal, which, like today’s proposal, delays implementation until 2020.
Italian Finance Minister Giovanni Tria said that Italy would adopt its own tax on digital firms if the EU does not reach an agreement by December.
Julie Martin
Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.
Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.
Julie can be reached at [email protected].
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