Tax fight draws divisions at EU digital summit

European Commission President Jean-Claude Juncker said he thinks EU member states will come to an agreement over controversial plans to tax digital companies. [European Council]

Supporters of a controversial new push to tax tech giants insist they will overcome fierce opposition from a group of around 10 member states.

Tax was not officially on the agenda at a day-long summit in Tallinn, where leaders from EU countries gathered on Friday (29 September). Officially, Estonia planned for discussions about Europe’s digital future in broad terms—and not on specific files of EU tech legislation.

But several leaders came out swinging after their meetings wrapped up.

French President Emmanuel Macron told a news conference that the tax plan is now supported by 19 countries, “which shows how much momentum there is.”

France is one of the driving forces behind plans for a new EU law to tax technology firms based on their revenue, and not profits, along with Spain, Italy and Germany. Macron did not name the other countries that have backed the call for such a tax reform.

In addition to the four countries that drafted the original plan, Austria, Bulgaria, Greece, Portugal, Romania and Slovenia also gave their endorsement at a meeting of finance ministers earlier this month.

Supporters of the new tax system argue that tech giants have used low-tax regimes to cut out billions of euros that they should have paid in the EU.

Over the last few weeks, the plan for a tax overhaul has picked up momentum.

“I do think we will have an agreement,” Commission President Jean-Claude Juncker said after Friday’s summit.

Juncker did not respond directly to a journalist’s question about whether the tax could work if it’s drafted using the bloc’s enhanced cooperation mechanism, which allows groups of at least nine countries to form laws that apply only to them, and not the entire bloc.

EU agrees to draft proposal to raise taxes on internet giants

A majority of member states agreed to start preparing a new levy on digital companies to compensate for low-tax regimes that cost billions of euros to European governments.

The European Commission announced in a communication last week that it is considering three different options for new legislation and will publish its proposal by next spring. The EU executive staffed up a dedicated unit to work on the digital tax plans and drafted its communication in “record time,” one Commission official said.

That has some countries up in arms.

Ireland and Luxembourg aren’t shy about their opposition to an EU digital tax.

“There are lots of other countries similar to Ireland who would have a different view. Certainly some of the Nordic countries. The Benelux countries have a very similar economy to Ireland, are very open to trade, already very modern and very digital,” Irish Taoiseach Leo Varadkar said.

In a bombshell decision last year, the Commission demanded €13 billion in back taxes from Ireland’s sweetheart tax deal with Apple. It’s still investigating a similar alleged deal between Luxembourg and ecommerce giant Amazon.

Estonia confident politics won't overshadow Tallinn ‘digital summit’

Estonia is hosting a summit focused on technology issues this Friday (29 September) but will have to battle for EU leaders’ attention less than one week after the German election, a fresh round of Brexit talks and French President Emmanuel Macron’s proposals on the future of Europe.

“Is the Commission now deciding for us all the time? It’s not a state,” Luxembourgish Prime Minister Xavier Bettel told journalists.

“I don’t want a Europe where it’s one against the other,” he added.

Bettel said EU countries backing the reform could pass the tax overhaul by using the enhanced cooperation mechanism. But he warned that the UK could lower its tax rate to lure companies after Brexit, exposing EU countries to fiercer corporate competition.

Previously, supporters of a digital tax had ruled out passing legislation for a smaller group of countries.

But Italian Prime Minister Paolo Gentiloni said he was open to leaving some member states behind.

“We need to advance on that proposal, but individual countries not only can but should work in coordination with each other which also means enhanced cooperation,” he told reporters on Friday.

Changes to EU tax law must be agreed unanimously by all member states. In his annual state of the union speech earlier this month, Juncker suggested that rule could be changed to allow leaders to make decisions faster. But that is a long way off: if leaders want to drop any unanimity rules, they have to agree unanimously on making that legal change.

Macron did not suggest that backers of a digital tax should resort to a downsized law using enhanced cooperation. Instead, he insisted the leaders “replicate what we did with banking secrecy”, referring to member states’ agreement to transparency rules in 2014 after years of opposition.

A similar fight over digital tax could drag on for years and beyond the current Commission’s term, which ends in 2019.

Some leaders showed their impatience with the sharp divide between member states.

“Countries that want to cooperate, that want a common tax for digital companies,” Austrian Chancellor Christian Kern said, “we can’t be held back by countries that want to move more slowly.”

Leaders did not come to any new agreement on tax during Friday’s meeting. Estonia glossed over the tensions between member states in a diplomatic round-up of the summit, which it hosted as part of its role as rotating president of the Council of the EU.

“We are committed to a global change of taxation rules and to adapting our own tax systems to ensure that digitally-generated profits in the European Union are taxed where value is created,” the document reads.

Bettel said he wants to stick to OECD-level tax reform, instead of an EU law.

The Luxembourgish head of state, who doubles as the country’s communications minister, argued that the tax issue is only a distraction from a more urgent need to reform Europe’s broader technology rules.

“To have a real digital agenda is more important than tax. We’re stuck between the US and Asia,” he said.

Juncker also pleaded with heads of state at the summit to sign off on draft digital single market legislation that are stuck in deadlocked negotiations.

Bettel asked the Estonian Council presidency to schedule an extraordinary meeting of EU telecoms ministers at the end of October. Ministers will continue discussing overarching topics that were on the digital summit agenda at that meeting. But they won’t touch on tax, an EU official said.

“Otherwise, Xavier Bettel would not have asked for the meeting,” the source said.

EU agrees to draft proposal to raise taxes on internet giants

A majority of member states agreed to start preparing a new levy on digital companies to compensate for low-tax regimes that cost billions of euros to European governments.

Subscribe to our newsletters