Europeans press for digital tax at G20 meeting

A handout photo made available by the G20 shows the Managing Director of the International Monetary Fund (IMF) Christine Lagarde (on screen), participating in a meeting of finance ministers and the governors of the Central Banks of the G20 countries, in Buenos Aires, Argentina, 21 July 2018. [Handout photo/EPA/EFE]

European finance leaders called for progress on global rules to tax the digital economy at a meeting of G20 finance ministers and central bankers in Argentina on Sunday (22 July), putting them at odds with US counterparts.

The final communique reaffirmed a commitment to address the impacts of the shift to a digital economy on the international tax system by 2020, without giving more details.

The European Commission, the executive arm of the European Union, proposed rules earlier this year to make digital companies pay more tax, with US tech giants such as Alphabet’s Google, Facebook and Amazon set to foot a large chunk of any bill.

Some 200 companies would fall within the scope of the new tax, European officials said at the time, estimating additional annual revenues of about €5 billion ($6 billion).

Major digital companies had “to pay their fair share of tax, because basically what we are talking about here is fairness,” European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters at the G20 meeting.

He said he was calling for a turnover tax to be adopted before the end of the year as an interim solution.

However, some EU members have voiced concerns their companies could be affected by such a tax and international partners may respond with retaliatory measures.

Macron digital tax plan faces EU rebuff

French President Emmanuel Macron’s ambitious plans for an EU digital tax targeting US tech giants such as Google or Facebook faced strong headwinds on Saturday (28 April), provoking anger from Paris.

“One of the big challenges is that taxation of the digital economy is mostly of course a taxation of American companies – because they are the key players in the world – so the United States feel that this is an attack concerning their digital economy, which it isn’t really,” European Council representative to the G20 Hubert Fuchs said on the sidelines of the meeting.

The US delegation was not immediately available for comment. US Treasury Secretary Steven Mnuchin said in a statement earlier this year that he “firmly opposes proposals by any country to single out digital companies,” noting that those companies were key contributors to the US economy.

‘Pot of gold’

Australia Treasurer Scott Morrison said the G20 discussions were useful because they established the root of the problem: that “no one knows” how to measure for tax purposes the value of the data users of social media services like Facebook create outside of the countries where those companies are based.

He said if those technical issues were not resolved, more countries would start taking “interim measures.”

“We’re not convinced at this point about the efficacy of those interim measures – which is basically a sales tax on digital advertising,” Morrison said. “It is more important to focus on those technical issues rather than the pot-of-gold approach, which is how much revenue can be raised.”

The European Commission wants a long-term, global solution based on a new method of calculating tax rates but has pushed in the meantime for the revenue tax to recoup revenues lost by EU states to large digital firms, officials said.

EU ready to hit big US tech firms with 3% turnover tax

Large digital companies with significant revenues in the European Union such as Google and Facebook could face a 3% tax on their turnover under a draft proposal by the European Commission.

Implementing “fair taxation of digital giants” would also be a way of “proving that Europe is united and strong” at a time when the region’s leaders feel pressured by the administration of US President Donald Trump, a senior European official said on the sidelines of the G20 meeting.

“We cannot accept that our SMEs (small and medium enterprises) have a level of taxation 40 points higher than the level of taxation of internet giants,” said the official, who requested anonymity to speak candidly about the talks.

EU tells tech firms it wants to tax profit, not revenue

The European Commission told top digital firms on Wednesday (7 March) that its favourite choice to reform online taxation would be a new method to tax profits rather than revenues, a move the industry welcomed.

The EU’s proposed levy on corporate turnover would be a major shift from existing rules, whereby companies are charged on their profits and pay no tax if they report losses.

“Taxation should be where the moneymaking is and if the digital economy is making the money all over the world it doesn’t really make sense if they only will declare their income in the United States,” said Fuchs, who is also Austria’s state secretary for finance.

Subscribe to our newsletters