A double failure for France in creating European taxes

German Chancellor Angela Merkel and French President Emmanuel Macron arrive for a press conference following a visit at the Humboldt Forum construction site in Berlin, Germany, 19 April 2018.

France has failed to unblock EU tax proposals on financial and digital transactions, two measures for fiscal justice that Paris has attempted to push for a long time at European level. EURACTIV France reports.

The outcome of meetings between Eurozone and EU finance ministers held earlier this week (3 and 4 December) disappointed Paris, which had hoped to make progress in creating these European taxes.

Paris and Berlin jointly brought compromises on two key measures of European tax reform: the tax on financial transactions, and a digital tax.

The two taxes, presented as tools of fiscal justice, have been under discussion for several years. However, no compromise has been reached between EU capitals, despite strong public support in favour of such measures.

Financial Transaction Tax (FTT)

The Financial Transaction Tax (FTT) is the oldest of the two. It has been discussed by a group of EU 10 countries under a so-called “enhanced cooperation” mechanism since it was put on the table by the European Commission, in 2011.

On Monday (3 December), France and Germany presented a compromise proposal that would see the existing French FTT extended to other countries. The proposal will be discussed again in January.

Germany and France to outline EU financial transaction tax proposal

Germany and France will outline on Monday a joint proposal for a financial transaction tax for the European Union that is based on a model already tested in France, the Sueddeutsche Zeitung newspaper reported late on Sunday (2 December).

 

At the end of the meeting, the ministers said they were ready to resume work on the basis of the French model. They also stated their intention to allocate funds to the Eurozone budget, which countries do not want to fund by an additional national contribution.

This will bring the debate to the level of the Eurogroup, which brings together the 19 member states of the eurozone. In the past, some of these countries have been openly hostile to the FTT, such as the Netherlands, Luxembourg and the Republic of Ireland.

“The tax option on the table is a discount version, with a reduced base, and revenues allocated to the European budget, rather than 100% of the revenues going to climate mitigation and international solidarity,” regretted Robin Guittard from Oxfam France.

“In these times of social and taxation protests, our leaders have to be listening,” Guittard said, adding the FTT was a measure for fiscal justice that is very popular with European citizens. “We need to reach an agreement at the beginning of 2019 and not settle for the initial excitement at announcements about the umpteenth relaunch of the process,” Guittard said.

Digital tax

The other awaited tax, the one on digital matters, was also undermined by European ministers. Bruno Le Maire, the French Minister of Economy and Finance, arrived with a hard-fought compromise with Germany, which is more cautious than Paris on the issue of taxing digital giants.

France and Germany aim to keep digital tax alive with new proposal

France and Germany sought on Monday (3 December) to salvage a proposed EU tax on big digital firms by narrowing the focus to cover only companies’ online advertising revenue, a European source said.

Consequently, rather than taxing the digital giants’ turnover at 3%, the Franco-German partnership has proposed that the tax will only concern digital platforms’ advertising turnover. This model would notably spare Amazon and Apple, but would focus more on Facebook and Google.

Another of the proposal’s concessions is that this tax would only be implemented if the negotiations at the OECD level for taxing the digital sector by 2021 are unsuccessful.

Despite this watered-down version of the digital tax, the ministers did not reach an agreement and intend to reconsider the Franco-German compromise at a later stage, depending on advances made by the OECD.

“Whereas European governments had committed to making concrete progress on the issue of the GAFA [Google, Apple, Facebook and Amazon] companies, the compromise proposed by France and Germany is a superficial agreement to save face,” regretted Quentin Parrinello of Oxfam France.

“It completely empties the tax of its substance and will enable a large number of businesses in the digital sector to continue to evade taxes in countries where they are, however, making record turnovers,” he added.

France and Germany backtrack on digital tax scope

France and Germany presented on Tuesday (4 December) revised plans for the EU’s proposed digital tax reforms under which large firms would pay a levy only on advertising sales and not on total revenues, representing a significant reduction of the Commission’s original scope.

The French European Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici also regretted the lack of agreement on taxing the digital sector.

“Tax on digital giants: no agreement at #ECOFIN but I’m not giving up. Fiscal injustice is still here and has to be rectified. The EU’s demand is still here and has to be met. Let’s keep discussing and find an agreement by March! #FairTaxation,” Moscovici tweeted.

The European inability to move forward on fiscal matters is notably due to the fact that these decisions are subject to unanimity. This is a restraint which almost systematically blocks all drives for reform.

One of the solutions could be moving to qualified-majority voting, believed Moscovici. “I would like to put my foot in the door of unanimity. There are topics where unanimity is neither desirable nor defendable,” he explained.

But such a change would have to be voted unanimously by member states, which makes its adoption as uncertain as the tax reforms currently dividing the member states.

Further Reading

Group of EU states rejects compromise on digital tax as deadline looms

A group of European Union countries rejected on Friday (30 November) a new compromise plan for the introduction of an EU-wide tax on digital revenues of large companies, diplomats said, making it increasingly difficult to meet a year-end deadline for a deal.

Ireland joins growing list of EU digital tax opponents

The European Commission's proposal to oblige tech firms to pay a 3% levy on revenues faced a further setback on Sunday (7 September), as Ireland joined a growing list of member states opposing the measures.

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