EU summit text on tech tax aims to please both sides

EU leaders have not yet made a clear choice about how to make sure digital companies pay their fair share of taxes.
At an EU summit in Brussels on Thursday (19 October), they adopted a text that balances the wishes of two groups of countries – and can be interpreted as victory by both.

One group wants new rules on taxation for global internet giants to be agreed at an international level through the Organisation of Economic Cooperation and Development (OECD), while another, led by France, wants the European Union to go it alone if that international agreement is delayed.

Upon his arrival at the summit on Thursday afternoon, Irish leader Leo Varadkar told the press that the member states did not agree on the digital taxation part of the summit conclusions “just yet”.

“The position of Ireland … is that if we are going to do anything on digital taxation, we should do it on an international basis through the OECD,” said Varadkar.

He said the Irish position was “shared by lots of other countries, particularly smaller northern European countries, and some countries in the Mediterranean as well”.

The influence of those countries can be seen when comparing the summit conclusions with earlier draft versions, which traditionally circulate in Brussels ahead of the summit.

The final text said that “it is important to ensure that all companies pay their fair share of taxes and to ensure a global level-playing field in line with the work currently underway at the OECD”.

The word “global” and the second part “in line … OECD” were added on Thursday.

On Friday, Varadkar said his country was “successful” in adding the position on OECD into the conclusions.

Luxembourgish prime minister Xavier Bettel is one of those in the group that want OECD rules.

“I’m not going to complain about the results,” he said at a press conference at the summit.

But the summit conclusions still task the European Commission to come up with proposals in parallel.

They said the leaders looked forward “to appropriate Commission proposals by early 2018”.

In earlier drafts, no date was given, but the word “speedily” was used.

The timing probably means that the Commission will need to come with proposals before knowing the outcome of a discussion on an OECD report about the topic at a G20 meeting in April 2018.

A French source said that France “obtained” that the Commission will come up with a proposal for the European framework independently of the OECD report.

Commission paper

Thursday’s debate follows a paper published by the European Commission about the issue one month ago, and a proposal by the four biggest eurozone countries to tax tech giants on their turnover instead of on their profits.

The report noted that the EU’s de facto average tax rate of companies with a digital domestic business model was 8.5 percent, much lower than the effective average tax rate of those with a traditional domestic business model, which stood at 20.9 percent.

“Member states are losing tax revenues,” EU commissioner for the euro, Valdis Dombrovskis, said at the presentation of the report.

He did not propose any new legislation yet.

But the Commission did say in its report that the EU should “focus on EU solutions if progress at international level proves too slow”, and that the EU’s executive could table proposals by the spring of 2018.

A Commission official, speaking on condition of anonymity after the presentation in September, said it was not yet clear if those EU proposals would be tabled before or after the G20 debate.

“It will be political decision that the college [of EU commissioners] will have to take about the timing of a possible proposal,” the source said.

Crucial will be the interpretation of the phrase “by early 2018”.