It was a somewhat patchwork political landscape that emerged in Tallinn on Saturday 16 September, following the informal discussions of the European finance ministers on the taxation of the Internet giants. In particular, they looked at the French idea of a turnover tax, to ensure that players in the digital economy pay tax where they carry out their activities.
The most sceptical, upon arrival, was the Danish Minister, Kristian Jensen. “I think we should be very careful not to tax what we’re going to live off in the future. If we want to tax the digital economy in Europe, our citizens will use digital solutions from elsewhere”, he said. “I am always rather sceptical about new taxes; Europe taxes heavily enough”, he added. The Maltese minister, Edward Scicluna, expressed his hopes that the French idea was not “a new FTT”, a reference to the financial transactions tax, which has been the subject of tough negotiations for several years. “You need to know what the impact is, and whether it’s going to change the whole system of taxation, in which case you have to look at it globally rather than piecemeal”, he added.
The Czech minister, Ivan Pilny, said that taxing the digital economy would “not be an easy question to resolve”. His Swedish counterpart, Madgalena Andersson, also feels that it is a global question and stressed that for the time being, the French proposal is “only an idea”. “How it should work is not at all work that has been done”, she said, questioning whether it was even necessary for this work to be done. The Luxembourg minister, Pierre Gramegna, pointed out that a company’s turnover does not tell you whether it is making a profit or a deficit. “To have a different basis for taxation (than profit: Ed) is a complicated issue”, he said.
The Dutch Minister, Jeroen Dijsselbloem, however, feels that the proposal of the four largest economies of the Eurozone is a “very good initiative”.
The French minister, Bruno Le Maire, explained that the letter of these four countries calling upon the Commission to introduce a tax on turnover had ultimately been signed by ten countries (see EUROPE 11859): Austria, Bulgaria, Greece, Portugal, Romania and Slovenia have added their signatures to those of Germany, France, Italy and Spain. “There are also those who support it without having signed, because they may have the odd reservation: and there are nine of them”, Le Maire said.
Poland, for instance, is opposed to the reference to the common consolidated corporate tax base (CCCTB) as a long-term solution to taxing the digital economy.
“And then there are eight countries with objections, to differing degrees. On the Richter scale of resistance, Ireland comes out on top, the other countries are a bit lower down”, Le Maire told us. According to our information, these countries are Hungary, the Czech Republic, the United Kingdom, Ireland, Luxembourg, Sweden and Cyprus. A number of them oppose the fact that the proposal is a French initiative, mainly because they would prefer to see a decision at international level.
Hostility from Ireland
“My approach is open, as open as possible and takes account of the problems and specifics of each European state, from Estonia, which is one of the most advanced countries in digital matters, to Ireland, which has based its entire economic model on an extremely low level of taxation and has been hit by Brexit to boot (…). I’m not telling Ireland that it has to sign on the dotted line. That’s not the open and constructive European spirit; there has to be decisiveness”, Le Maire went on to explain.
The French minister, who wishes to move forward quickly on a dossier that requires unanimity at the Council of the EU, listed the “considerable” technical difficulties that will have to be dealt with. “These are related to the definition of the taxable base, level of the rate, the way we could deduct this payment on the turnover from the future payment on corporate tax, as I believe that the CCCTB is still excellent option and maybe the best option in the long run”, he explained.
“Then, there is the definition of the value created: data, the use of data, the sharing of data, the management of data? It’s incredibly complicated. The only thing I wish to stress is that we cannot state that the most important value in today’s economy is data and we shouldn’t tax those who trade in data”, the French minister argued.
Le Maire plans to travel to Dublin or to meet his Irish counterpart in Paris to try to appease the Irish concerns. However, there will be no “stand-off”, because, he added, the suggestion of the President of the European Commission, Jean-Claude Juncker, to use the passerelle clause in the treaty to allow the Council to make decisions by qualified majority rather than unanimously on taxation issues is not for any time soon (see EUROPE 11861).
Juncker was referring to article 48.7 of the Treaty on the EU, whilst article 116, favoured by certain MEPs, will authorise the Commission to propose a taxation text by qualified majority if it notes that there is a competition disruption on the single market.
Unanimity on the need for a solution
During the session behind closed doors, British minister Philip Hammond was one of the most implacable. Warning against the temptation to move forward at EU level, he is reported to have said that the US should not be given a “pretext to withdraw from the OECD process”.
The Belgian minister, Johan Van Overtveldt, who said upon his arrival that he supported the tax but had ultimately not signed the document, is also reported to have stressed the importance of the OECD’s work, but added that the EU could not wait for the OECD “indefinitely”.
“Everybody was of the opinion that we have to find a solution”, the Estonian minister, Toomas Toniste, whose country currently holds the rotating Presidency of the Council of the EU, said after the meeting. The idea is absolutely to avoid a situation in which the countries in favour start to implement measures at national level, which would make the EU a “horrible place to do business”, said Dmitri Jegorov, the Deputy Secretary General for Taxation at the Estonian Finance Ministry. “It is too early to say what direction we are going in; enhanced cooperation is legally possible”, he added.
Jegorov went on to say that quick fixes to the taxation arsenal were not without their risks, although they may appear attractive (dual taxation, taxing losses, etc.). Estonia also wishes to ensure that the quick fixes will not make life hard for start-ups. “Changing the rules on permanent establishment is a long-term solution for us; we are pushing in favour of the concept of significant digital presence”, he said. The idea is to get rid of the quick fix once the long-term solution can be put in place.
The next step will be the publication by the Commission, most likely this week, of a list of options to move forward. Then there will be an informal summit on the digital economy of the heads of state or government, in Tallinn on Friday 29 September. The Commission hopes that the European leaders will identify their preference from the list (see EUROPE 11819). (Original version in French by Elodie Lamer)