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EU working on digital tax to stem outflow of ‘bags of money’

LiveMint logoLiveMint 16-09-2017 Mark Deen

Paris: European Union finance ministers are developing a new way to tax digital companies such as Amazon.com Inc. and Facebook Inc. to raise money from an industry that they say provides less than it should to public coffers.

French finance minister Bruno Le Maire told colleagues at a meeting in Tallinn, Estonia, that the bloc should agree to a tax on revenue, rather than profits, of the digital industry by mid-2018. Ten countries, including Germany, Italy and Spain, back the initiative. They’re concerned that taxing profits is too complicated under international rules, allowing companies to skirt traditional levies.

“We are responsible to our taxpayers to deal with it, we can’t just watch how bags of money are transferred elsewhere,” Slovak finance minister Peter Kazimir said in an interview. “I favour imposing immediate levies, similar to sales tax, but only as a temporary solution before we reach a global agreement.”

Traditional taxation practices have failed to capture business from an industry where value added tends to be virtual rather than material and digital companies have sought to take advantage of loopholes created by uncoordinated European regulation.

Tax bills

Even as national governments accept that the current taxation system needs to be altered, the path forward is fraught with difficulties, with Danish finance minister Kristian Jensen saying, “this is an area where we should be very careful.” He warned that a new levy could discourage digital use and push customers to products outside of Europe.

“You need to know what the impact is and if it’s going to change a whole system of taxation,” Maltese finance minister Edward Scicluna said on Saturday. “One has to look at it globally rather than partially, because it involves the U.S., it involves China.”

Austrian finance minister Hans-Joerg Schelling proposed that current discussions only apply to a temporary solution before passing that outline on to the Organisation for Economic Cooperation and Development, a group that advises its 35 members on policy, for a more comprehensive fix.

The battle has intensified since the European Commission last year ordered Apple to pay as much as €13 billion ($15.5 billion) plus interest in back taxes, saying Dublin illegally slashed the iPhone maker’s obligations to woo the company to Ireland. Apple and the Irish government are fighting the decision. In another case, Google in July won its battle against a €1.12 billion French tax bill after a court rejected claims the search-engine giant abused loopholes to avoid paying its fair share.

Citizens ‘outraged’

Le Maire invoked the EU’s need to counter anti-European political movements in his campaign for the tax, calling to mind French President Emmanuel Macron’s hard-fought election victory over populist Marine Le Pen in May as a reason to accept the reform.

“Citizens in Europe are outraged by the situation,” Le Maire said at a press conference in Tallinn following a meeting of EU finance ministers. “They cannot understand that such huge companies are not paying their share of tax when small companies are obliged to pay.”

One challenge for France is that all 28 current members of the EU need to agree to initiatives concerning taxation, meaning one country alone could block the plan.

Dmitri Jegorov, undersecretary for tax and customs policy at the Estonian Ministry of Finance, said they’re prepared to offer a two-staged approach—that includes a quick fix as well as a longer-term solution—in the event there’s a stand-off over the proposal.

“It will be extremely difficult for anyone to say on the ministerial level that everything is just fine,” Jegorov said. Bloomberg

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