Taxing the digital economy could slow progress on tax harmonisation

Tech giants like Google can file their profits where it is more fiscally convenient (here, Google's European HQ in Dublin, Ireland). [Shutterstock]

The issue of taxing the digital economy could undermine efforts for harmonising fiscal rules in Europe. Unless member states kill two birds with one stone. EURACTIV France reports.

Taxing GAFA (Google, Apple, Facebook, and Amazon) is a much-trumpeted initiative of the EU. During the EU summit taking place on 19-20 October in Brussels, 18 EU heads of government and heads of state will discuss how to tax tech giants.

The issue is not new, but the dossier has been sped up under pressure from Spain, Italy, Germany and France, who are pushing for this reform.

19 Member states

“There are about 19 member states interested in taxing digital companies. Reaching a consensus on fiscal rules on the e-economy is a great political achievement,” said a source in the French presidency.

Because of their digital nature, GAFA can declare their profits wherever they find the most lenient taxation rules.

The rate of taxation for digital companies in the EU is two times lower than that applied to traditional companies, and sometimes much lower, according to the European Commission.

The political urgency given to the dossier, notably in Paris, could however jeopardise another major reform put on the table by the Commission a little less than a year ago: the harmonization of the corporate tax base.

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This Common Consolidated Corporate Tax Base (CCCTB), already debated in 2001, 2007 and again in 2011, has never obtained unanimous support form all member states; a necessary condition for fiscal rules, under the sole competence of national governments.

But the various tax evasion scandals (LuxLeaks, Panama Papers, etc.) have raised momentum for harmonising fiscal rules across member states.

Thorny consensus

If consensus on a common tax base seems within reach, member states are less likely to agree on harmonising income tax.

“There will be winners and losers,” admitted French MEP Alain Lamassoure, rapporteur on the CCCTB dossier.

For Paris, the negotiations on CCCTB are taking too long. What’s more, the text does not include specific provisions for taxing digital companies.

“The localisation of intangible assets is not included in the CCCTB dossier,” explained Cyril Maucour, a fiscal expert, during a conference on CCCTB held by the Friedland Institute in Paris on 18 October.

Today there are two ways forward: amending CCCTB to include digital economy provisions or making a separate proposal to tackle the digital issue faster.

According to the Commission, “taxing the digital economy could easily be integrated into the adopted rules.”

But conscious of the political pressure, Brussels has not discarded the option to enact “short-term remedies”.

Among the ideas tabled by the Commission, a tax on turnover, whereas corporate taxation normally targets enterprises’ profits. But also a tax on advertising.

For Paris, which is pushing for dedicated legislation, integrating the digital economy into the CCCTB dossier would be logical, but “if the subject is not making sufficient progress within the dossier, we will need a separate text as a transitory solution”, explained a source in the French presidency.

“Obtaining consensus would be hard,” said Lamassoure.

For the European Parliament, which has only a consultative role on fiscal subjects, the plan to tax digital companies is welcome.

In the report, to be adopted in December, MEPs propose the inclusion of specific provisions for taxing digital companies within the CCCTB dossier.

The Commission’s proposal seeks to calculate a common tax base on three criteria: sales, employees and capital.

The Parliament seeks to add a fourth criterion: the collection and use of users’ personal data. “Personal data is the only thing that can’t be delocalised,” explained Alain Lamassoure.

The political pressure to tax GAFA could push member states to choose a transitory, separate measure – but without this momentum, the CCCTB dossier on a common tax base could be stalled again.