Is this the end of the road for the EU’s digital services tax?

Ireland, Sweden, Denmark and Germany block digital services tax plan in Brussels.

The spectre of a 3pc digital services tax (DST) levied by the EU against multinationals has been vanquished for now after Ireland, Sweden, Denmark and Germany joined forces in what is being heralded as a coup for diplomacy.

Ireland stood to lose up to €160m a year in lost tax revenue if the EU pressed ahead with the new DST plans. But is the controversial tax likely to make a return at some point in the future?

The European Commission 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.

The drive was largely led by France, Germany and the UK, which were campaigning for a tougher approach to alleged tax avoidance by tech giants. They estimated that the EU could raise €5bn a year by taxing the revenues of these companies rather than their profits.

In October, Ireland made a joint submission along with the three other states warning that the proposals breach international treaty obligations – specifically, standards agreed in an OECD Inclusive Framework on BEPS (base erosion and profit sharing), which has been agreed by 115 countries and jurisdictions.

At a meeting in Brussels yesterday (28 November), several countries including Ireland raised principled and technical objections to the proposals.

The widespread objection of the plan has stymied France and the Austrian presidency’s hopes that the measure would have passed.

What happens next?
But is it the end of the road for the DST plan? Not by any stretch of the imagination.

The UK has already outlined plans to hit tech giants 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.

According to The Irish Times, Germany has said that it would only support the EU-only proposals if efforts by the OECD to address the taxation issue failed. The OECD proposals are expected to be published in draft form in 2019, with final proposals due in 2020.

Depending on what happens in 2020, the DST plans for Europe may only be temporarily shelved.