EU digital tax levy could be delayed until 2020

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Pivotal OECD report on digital taxation due in two years.

Plans to impose an EU-wide digital tax on global tech giants appear to have floundered after several governments rejected them.

At a meeting in Brussels yesterday (6 November), Germany said it wants to delay a decision until a new report from the Organisation for Economic Co-operation and Development (OECD) is delivered in 2020, ushering in a potential global standard.

Ireland’s Minister for Finance Paschal Donohoe, TD, said that the directive proposed by the European Commission (EC), with the strong support of Austria and France, would end up hurting small businesses and open economies. Germany said it would be committed to transposing the OECD report into EU law once it is published.

In a major concession, France’s Finance Minister, Bruno Le Maire, accepted the logic of delaying the implementation of a digital tax until 2020, but urged that a decision should be reached this year to prevent individual states applying their own digital taxes, which could hurt the EU single market.

The EC proposed in March that EU states would apply a 3pc levy on the digital revenues of large digital giants to counter the fact that companies such as Apple, Facebook and Google took advantage of legal loopholes to pay lower rates of corporation tax on their earnings.

Even if the digital services tax (DST) directive is approved at an EC meeting in December, it would still take two years for it to become law.

Dangers of a digital trade war

European sabre-rattling over digital taxes and the UK’s decision to apply a DST by 2020 have already raised the hackles of US officials, who warn that the events might prompt retaliatory action from Washington DC.

Last week, UK chancellor of the Exchequer, Philip Hammond, outlined plans to hit tech giants such as Google, Facebook, Amazon and Apple with a DST from 2020. The 2pc tax, revealed in the latest UK budget, will target revenues earned in the UK by online players ranging from search engines to social networks. The tax will only apply to companies that generate more than £500m a year in global revenues.

The proposed EU plan aims to apply a 3pc levy against digital players earning more than €750m a year and could take €5bn a year from the earnings of tech giants.

“If the United Kingdom or other countries proceed, that will prompt a review of our US tax and regulatory approach to determine what actions are appropriate to ensure a level playing field in global markets,” said Republican representative Kevin Brady last week.

Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com