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EU's Divisive Plan to Tax Facebook, Amazon Returns to Spotlight

EU's Divisive Plan to Tax Facebook, Amazon Returns to Spotlight

By Nikos Chrysoloras, Bloomberg | Updated: 6 November 2018 13:03 IST

Highlights

A scrap among European Union countries is set to resume on Tuesday
A 3 percent levy on sales of companies has been proposed
The tech industry has pushed back against the tax

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.

Finance 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 EUR 750 million ($853 million) or more, such as Facebook, Alphabet, and Amazon.com. 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 US-based.

"Where changes like this have been made in the past, they've been made on the basis of global consensus and cooperation through the OECD," Irish Finance Minister Paschal Donohoe said on Monday, referring to the Organisation for Economic Co-operation and Development. "It continues to be my own view that this is the safest way of doing this."

The UK, 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 GBP 400 million ($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 meagre wage growth.

French Finance Minister Bruno Le Maire said on Monday that an agreement on the tax plan must be reached by the end of the year. "It is this political decision that counts in our eyes, even if we are open to technical improvement of the commission's proposal," he said.

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 October 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, according to one of the documents. 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 the document.

In the runup 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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Further reading: Facebook, Amazon, EU

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