European efforts to implement a digital sales tax have stalled after Ireland, Sweden and Denmark yesterday stood firm in their refusal to approve measures aimed at scraping more cash in from tech giants.
Governments are engaged in an ongoing battle over how to tax tech giants that often have little or no physical presence in a country, can station an HQ anywhere regardless of where their customers are, and easily shift profits to other countries.
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The Organisation for Economic Co-operation and Development (OECD) is working on a global solution to the issue, but has yet to make headway, so the European Union this year began drawing up interim measures, which need to be agreed by all 28 member states.
The EU's proposed tax is a 3 per cent levy on firms with a global annual turnover of €750m and annual EU revenue of at least €50m. This would hit around 200 companies and boost member states' coffers by about €5bn.
But opponents argue that the plan is fundamentally flawed, risks damaging the EU's competitiveness and fear that it will be perceived as a tax on American firms and bring repercussions – just last week, a senior US Republican branded UK efforts to tax firms "a blatant land grab".
Sweden's Magdalena Andersson told a meeting of finance ministers yesterday that "taxing revenues rather than profit will hinder innovation, investment and growth in the EU and damage the competitiveness of the EU in comparison to other regions".
She added that the proposal is based on a "doubtful assumption" that users create all the value in these companies. The tax would benefit countries with large populations at the expense of those with innovative digital businesses, Andersson said.
Ireland's finance minister, Paschal Donohoe, echoed these points, adding that setting a precedent where the tax incidence is created and levied at the point where consumption occurs will have many consequences. "What kind of reaction would we have if this was a model that was being imposed on us?" he asked.
The lack of movement is a blow to France, which has backed the interim measure as a vote-winner for a public that is increasingly annoyed at the small sums of cash handed over companies with turnovers in the billions.
Another frustration for proponents, and the European Commission, is that a dozen or so member states have given up waiting for the rest of the bloc to agree and are implementing their own measures, with the UK last week adding its name to that list. This could make the international talks more challenging.
Speaking at yesterday's meeting, Austria's Hartwig Löger emphasised that "Europe should not act in a level of 20 or more individual solutions" but take one European solution to the global table.
He argued that the discussion is "about broad fairness" in tax between traditional and digital economy, and "is not a bashing against the digital economy".
The proposals will be voted on at next month's meeting, but – in what has been seen as a major concession – France has said that they should hold off on implementation until 2020, to push the OECD to agree an international version by then.
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The UK's own digital tax – which proposed a 2 per cent levy on profitable companies that generate at least £500m a year in the business lines in scope – isn't due to be implemented until April 2020, for similar reasons.
But Ireland's Donohoe told the meeting it was possible that a international agreement would have been reached sooner if the commission hadn't taken the lead in "igniting this debate".
For the most part, the tech giants are sticking to the lines that they pay all the tax required of them in each country, but that they understand the importance of considering new measures.
However, they are also keen to bang the drum for international consensus (y'know, the one that isn't really going anywhere).
"For a tech company such as ours, and indeed for many other companies that operate across borders in different countries, a multilateral international solution would be really meaningful and of long-term significance," Google's public policy manager Katie O'Donovan told peers last week, when asked about the UK's decision to go it alone.
"It is important to have an international resolution to this tax issue so that the issue is not solved in one country but has knock-on consequences in other countries." ®