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EU leaders not ready to act on digital tax without OECD

EU leaders on October 19 witnessed a battle between member states to determine whether the EU or the OECD should influence the other on the taxation of the digital economy.


EU leaders on October 19 witnessed a battle between member states to determine whether the EU or the OECD should influence the other on the taxation of the digital economy.

Irish Prime Minister Leo Varadkar told reporters on his arrival in Brussels that if the EU were doing “anything on digital taxation,” then it had to do it “on an international basis through the OECD.”

“If we introduce a digital tax in the EU, rather than collecting any taxation we would hand an advantage to the United States, Japan, and the United Kingdom, which is leaving the EU,” Varadkar added.

During a closed-door meeting of the 28 heads of state and government, Luxembourg Prime Minister Xavier Bettel made similar points, underlining the need to protect the EU’s competitiveness. “Several member states supported him,” and not only small member states such as Ireland and Malta, but also the United Kingdom and Denmark, one of the sources said.

There was a lengthy discussion on what the final written conclusions of the leaders should be. A first draft simply says that it is important to ensure a level playing field. “The European Council invites the [EU] Council to speedily pursue its examination of the [European] Commission communication on this issue, and looks forward to appropriate Commission proposals,” the draft says.

Most sectoral conclusions in European summits are fine-tuned before EU leaders gather. There are several discussions by EU ambassadors and at the ministerial level during the General Affairs Council, which in this case took place October 17. The European Council’s conclusions set the tone for work at a lower level for the next few months.

Luxembourg and other member states thus pushed for a mention of the OECD process in the conclusions. They managed to incorporate the sentence, “It is also important to push ahead with the ongoing work in the OECD.” But that was not enough. In the end, the final conclusions adopted by EU leaders clearly say 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 leaders’ discussion “was the opportunity to note openly that there are a number of countries that are reluctant to move on towards a more common strategy,” Belgian Prime Minister Charles Michel told reporters after the meeting. In line with the position taken by his finance minister, Johan Van Overtveldt, Michel said that while the EU should take the OECD’s work into account, it cannot wait forever.

“We ask (the commission), without waiting for the OECD report, to draw up proposals in order to continue feeding the political discussion,” Michel said.

French President Emmanuel Macron told reporters on October 20 that it would be possible to combine European competitiveness with the ability to tax the digital sector if the EU reaches a collective consensus. He said he does not believe tech giants would stop operating in the EU because of the tax. “Some member states may stand to lose marginally in the short term,” he said, because some of those countries built their tax systems in a way that allows big tech companies to exploit loopholes in the tax rules. But Macron added that if the EU acts collectively, it could have weight in the international debate. French Finance Minister Bruno Le Maire said October 10 that the idea that Ireland could get a bigger share of the pie should be explored to allay its concerns that it stands to be the biggest loser of the equalization levy.

According to sources, Macron said in the closed-door meeting that he has nothing against a global solution but added that the EU should move forward or the international debate could stagnate. Leaders discussed the timing and said they look “forward to appropriate Commission proposals by early 2018.”

“The sabotage mainly orchestrated by Luxembourg and Ireland regarding the taxation of the U.S. digital giants is unacceptable. This shows once again that it is necessary to put an end to the unanimity rule on taxation if the EU wants to move forward,” Philippe Lamberts, Belgian member of the European Parliament, said October 20 in reference to mention of the OECD in the conclusions.

The signal given by EU leaders will still be useful for the European Commission, which was wavering between outpacing the OECD or coming out with a legislative proposal for an equalization tax right after it if the OECD’s interim conclusions prove to be disappointing.

EU officials explained that the work at the OECD level is being carried out by French and American rapporteurs. The latter reportedly asked for a delay in the publication of the draft report, to February instead of December.

And even though the Estonian presidency of the EU Council came up with alternative proposals to the French equalization tax on digital companies’ turnover, the discussion at the technical level between member states showed that the tax was the only way forward without a consensus at the global level on amending the transfer pricing and attribution of profit rules.

France says 19 countries support its proposal, while only 10 finance ministers agreed to sign a letter officially claiming their support. That would still be enough to launch an enhanced cooperation procedure, the vehicle used for the European Commission’s financial transaction tax proposal in 2011. Enhanced cooperation can be used only as a last resort, EU treaties say.

The EU wants to avoid a situation in which every country moves in a different direction. However, on October 20 Italian Prime Minister Paolo Gentiloni said his government may proceed on its own in the context of its budget for 2018.

By Elodie LAMER

Cette information est extraite de notre service d'actualité taxnotes

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