Watch out, Big Tech: The European taxman cometh.
The European Commission on Thursday threw its formidable muscle behind plans to swiftly impose new taxes on digital commerce, in a push to end what officials described as deep and mounting losses to national budgets.
And Commission Vice President Valdis Dombrovskis said the need to ensure that tech giants like Facebook, Google and Amazon pay their fair share was so urgent — given the rapid expansion of the digital economy — that the EU was prepared to act unilaterally, without waiting for international consensus.
While the Commission did not endorse a specific initiative, its call for a new tax regime for the digital economy lends major new momentum to a France-led push to withhold taxes based on the tech giants’ revenues in Europe rather than simply taxing their profits.
Already, 10 EU finance ministers have signed a letter saying their countries back the French proposal, and eight other nations have expressed support with minor reservations, according to an official directly involved in the talks.
France is pushing hard to win as many endorsements as it can ahead of an EU leaders’ summit next week in Tallinn, focused on digital issues.
The Commission’s loud declaration of support for the French initiative, or something like it, reflects mounting frustration in Brussels over the failure of EU capitals to coalesce around a longstanding proposal for a common consolidated corporate tax base (CCCTB), which many experts view as a more effective and lasting solution to fight tax avoidance — not just for tech giants but for all companies, many of which are also doing more business online.
Dombrovskis, speaking at a news conference, said the CCCTB remained a long-term goal, but “this may take time given its complexity, and the digital economy will not stop growing in the meantime.”
He added that the French initiative was one of several quick fixes that the Commission could implement.
“We also may need to go for some short-term solutions, and this equalization tax is one of the options which we are putting forward,” he said. “It would be basically some kind of a tax on the turnover of digitalized companies.”
The tech giants are now taxed only on profits, and they can choose to report those profits in the country that offers the most favorable tax treatment. Such an arrangement by Apple in Ireland led the Commission’s competition czar, Margrethe Vestager, to rule last year that the Irish government had failed to collect €13 billion in tax revenues.
Ireland and Apple denounced the decision and are fighting it.
A senior Commission official said the new initiative was intended to send a message that the EU was not afraid to take on the titans of the digital industry.
The major technology companies declined to comment publicly on the Commission’s action. But privately, industry executives expressed frustration and confusion, saying it remained unclear what would happen. Several complained there had been a lack of communication between government officials and the industry about the idea.
According to Dombrovskis, EU countries are entitled to revenue based on the economic activity occurring in their markets, regardless of the location of a corporation’s real or virtual headquarters. “Companies should pay tax where the real economic activity is taking place,” he said.
The French proposal to tax revenues would be a huge shift in policy and could have a host of unknown or unintended consequences. If implemented, it could create friction with the United States, particularly if the Trump administration pushes ahead with any corporate tax discount plan intended to coax companies to repatriate cash profits now held outside the U.S.
By some estimates, major U.S. companies are sitting on more than $1 trillion in cash profits that they have parked abroad to avoid the country’s 35 percent corporate tax rate.
During his news conference, Dombrovskis said the EU would prefer an international solution, but suggested it was unlikely that consensus could be developed any time soon. And he said quick action was needed in Brussels because EU countries are already taking unilateral steps to respond to tax avoidance and the loss of revenues.
“What we see is a patchwork of different responses in different member states,” he said. “That’s why we’re emphasizing this need for unified, European approach.”
More fiscal cohesion
In pushing for the tax on revenues, France and President Emmanuel Macron are angling to become a leader in the development of more cohesive fiscal and economic policies in the EU.
The French proposal is supported by Germany, Italy, and Spain, and the initiative won backing from six other nations — Romania, Bulgaria, Slovenia, Greece, Portugal, and Austria — at an informal gathering of EU finance ministers in Tallinn last weekend.
The official with direct knowledge of the talks said Lithuania, Latvia, Estonia, Finland, Hungary, Poland, Slovakia, and the Netherlands are also now leaning heavily in favor of the idea, which still requires unanimous support for adoption.
Countries cool to the French proposal include the U.K., Luxembourg, Ireland, Sweden and Cyprus. While the U.K.’s opinion might be discounted given that it is leaving the bloc, the opposition of the others will be harder to dismiss.
Some of the skeptics expressed concern about double taxation and not having global support through the Organization for Economic-Cooperation and Development, which has been working on a report on how to treat taxation of the digital economy.
“It would be premature and difficult to agree at EU level without having [the OECD] report,” Irish Finance Minister Paschal Donohue told his peers behind closed doors at the informal meeting in Tallinn.
Nonetheless, Dombrovskis emphasized that “what counts now is that the EU speaks with one voice in the international arena.”
Mark Scott contributed reporting.