by Julie Martin
Most EU nations now back a plan to tax digital company revenues as a stopgap measure until global agreement is reached on new international tax rules for the digital economy.
Finance ministers from Austria, Bulgaria, Greece, Romania, Slovenia, and Portugal have added their names to a letter of intent, signed earlier by ministers from Germany, France, Italy and Spain, expressing a desire to pursue EU agreement on a temporary tax on digital firm revenue, known as an equalization tax.
Belgium and the Netherlands are publicly supporting the initiative. Ireland, Malta, Denmark, and Luxembourg are among those opposing the plan or expressing strong reservations.
Speaking after the September 15–16 informal EU finance ministers meeting, Estonian Finance Minister Toomas Toniste said that over half the ministers are now on board with the measure.
Long-term solutions
The tax would be designed to allow EU nations to recover at least some of corporate tax that digital firms now avoid by taking advantage of outdated international tax rules that base a country’s taxation rights on whether a company has physical presence or assets in the country.
Once the international tax laws are updated to appropriately tax these firms, the equalization tax would be scrapped.
Toniste said that over half the EU ministers support a long-term solution for the taxation of digital firms, proposed by the Presidency of Estonia, which would add a new concept of a virtual permanent establishment to the international tax rules.
All agree, though, that it is unlikely that such international agreement will be reached soon.
Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, recently said he would not criticize the push for a quick-fix EU equalization levy. Negotiations to modernize the permanent establishment definition to account for digital firms have stalled causing counties to look elsewhere for options, he said.
Enhanced cooperation for equalization levy
If an EU-wide equalization levy fails to achieve unanimous agreement among the 28-member States, it possible for EU states to proceed with the tax under EU enhanced cooperation, which requires only nine States to join. EU states can also impose the temporary tax unilaterally.
Dmitri Jegorov, undersecretary for tax and customs policy at the Estonian Ministry of Finance, told reporters after the finance ministers meeting that it is too early to conclude that unanimity among EU States is not possible. He also confirmed that enhanced cooperation is a legal option for the equalization tax.
“What we should be avoiding is 28 unilateral actions, as this would make Europe a horrible place to do digital business,” Jegorov said.
Way forward
European Commission Vice President Valdis Dombrovskis said that the Commission will issue a communication proposing a way forward on the taxation of digital firms before the EU digital summit, slated for September 29. A variety of options will be presented, including the equalization tax proposal, he said.
The goal is for the EU States to reach agreement a common position on the taxation of digital firms by December so the EU can speak with a unified voice in discussions with the OECD on a global fix, Dombrovskis said.
The Commission intends to follow up with EU proposals by next spring, Dombrovskis said.
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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