US authorities have criticised the EU’s plans to introduce a ‘digital tax,’ describing the measures as discriminating ‘against US companies’ in a letter penned to European Council president Donald Tusk and Commission President Jean-Claude Juncker, at the close of last week’s EU summit.
The communication highlights the fact that many stakeholders on the other side of the Atlantic feel that they may be unfairly targeted by the commission’s proposed digital services tax (DST).
“The EU DST proposal has been designed to discriminate against US companies and undermine the international tax treaty system creating a significant new transatlantic trade barrier that runs counter to the newly launched US and EU dialogue to reduce such barriers,” the letter, jointly signed by Republican chairman Orrin Hatch and his Democratic counterpart Ron Wyden, reads.
“We urge the EU to abandon this proposal, urge the member states to delay unilateral action and instead refocus efforts on reaching consensus with other leading economies within the OECD on any new digital taxation models.”
The European Commission’s proposal includes the obligation for tech firms to pay a 3% levy on revenues where such money is generated, rather than where the companies are domiciled for tax purposes. MEPs in the European Parliament, meanwhile, have called for higher rates.
On Tuesday (23 October), France’s Finance minister Bruno Le Maire put pressure on the European Parliament to adopt measures that would see a controversial digital tax framework rolled out across the EU, in a meeting with MEPs.
Le Marie addressed members of a joint sitting of parliament’s economics and special tax avoidance committees and hit home the importance of fair taxation in the digital services sector.
“It’s time to decide whether we should stop the existing situation where digital giants pay 14 percentage points less in tax than other companies”, he said.
OECD falls short
Part of the reason why the EU has decided to make progress in this area is due to the fact that talks to establish a digital tax at an OECD level have stalled, with a consensus not being reached.
“The OECD work on the taxing of the digital economy has not delivered sufficient progress, which illustrates the need for the union to advance on this matter at an EU level,” Dariusz Rosati, a Polish EPP deputy, said during a recent committee discussion on the digital tax plans.
Rosati further highlighted the fact that certain countries across the EU, eleven in total, are starting to plan their own tax regimes. A harmonised solution at an EU level should be sought, rather than unilateral frameworks, Rosati emphasised.
Other EU member states, however, remain unconvinced that a digital tax should be imposed at all.
Ireland, Finland, Sweden and the Czech Republic have taken a stance against the plans, which estimates say could bring in as much as €5 billion in tax revenue annually.
The countries say the measures would breach international treaty obligations and could result in double taxation issues.
Le Maire had previously attempted to calm divisions by suggesting that the digital tax plans should include a “sunset clause.”
Such an inclusion in the directive would mean that the new EU tax would end once a deal is reached at the global level.
Austrian Finance Minister Hartwig Loeger has supported the idea of a sunset clause and sees it as a viable solution for bridging the gap in waiting for the OECD to reach consensus and making progress on the matter now.
The Commission’s proposal already makes clear that any digital tax will already only be actioned on a temporary basis, but the sunset clause establishes a definitive end-date for such measures.
In order to be adopted, the reforms require unanimous agreement among EU governments.
The Austrian presidency hopes to reach a compromise by the end of the year and has scheduled a review of the plans for the end of this week.