The informal meeting of the finance ministers of the European Union, to be held in Vienna on Friday 7 and Saturday 8 September, will provide participants with the opportunity to exchange their observations on the taxation of the digital sector, a fiscal capacity for the Eurozone and the future of the European Investment Bank (EIB).
Taxation of digital. The ministers will resume their work on the Commission’s proposal for a 3% tax on the gross revenue of the activities of digital platforms (‘digital services tax’ or DST) (see EUROPE 11986). The Austrian Presidency of the Council of the EU intends to gauge the member states as to their willingness to fine-tune the text in order to facilitate a unanimous political agreement by the end of the year.
This will be easier said than done. Among those who are sceptical about this tax and would prefer a global agreement through the OECD are Malta, Luxembourg, Ireland, Denmark, Lithuania, Finland, Sweden and the United Kingdom (see EUROPE 12012).
As allies, France, which is strongly in favour of the proposal, can at least count on the unequivocal support of Portugal, Poland and Spain. In Paris on Tuesday, the French finance minister, Bruno Le Maire, and his Spanish opposite number, Nadia Calviño, called for the work to be stepped up in order to reach an agreement by the end of 2018.
The Italian government’s position, on the other hand, is still unclear and despite its stated support for France (see EUROPE 12011), Germany seems to be looking elsewhere. For instance, it is reported to have pushed for OECD representatives to be invited to the informal ministerial.
In a note that will serve as a basis for talks, the Austrian Presidency stresses the need to act. Eleven member states have brought in – or are planning to bring in – national taxes to meet the challenges of the digital economy.
“These uncoordinated unilateral measures constitute a fragmentation of the single market and distort competition”, it warns, calling for a single approach EU level.
To do this, Vienna suggests reducing the scope of application of the DST which, as it currently stands, would apply to three types of digital service: online advertising, inter-mediation services and the sale of data.
Vienna is proposing to exclude the sale of data, to the satisfaction of countries such as Germany, which has its automotive industry to defend. Austria will sound out the member states on this exclusion and ask whether, in such a case, technical solutions could be devised to avoid efforts to circumnavigate the taxation of online advertising.
The Commission takes the view that the sale of data should be taxed at European level as it represents a not inconsiderable chunk of the new business models in the digital sector.
Furthermore, according to the Austrian document, the final OECD report on the taxation of digital companies may not be published until 2020, contrary to what the organisation suggested in April, when it spoke of early publication in 2019 (see EUROPE 12012).
Budgetary instruments. The financial policy-makers of the European Union will also discuss a number of budgetary instruments suggested by the Commission in its proposal for the multiannual financial framework 2021-2027, namely the reform support programme and the European investment stabilisation function (see EUROPE 12013, 12031).
The institution would like these instruments to be part of the EU budget. Readers may recall that these questions echo the proposals for the deepening of Economic and Monetary Union (EMU) presented in December 2017 (see EUROPE 11920).
The ministerial discussions are essentially expected to include the pros and cons of these future budgetary instruments. The debates are not expected to be plain sailing.
With the Commission calling for these instruments to be available to the non-Eurozone member states, the Franco-German roadmap on the future of the EMU calls for the scope of this budgetary capacity to be limited to the Eurozone. According to Paris and Berlin, the stabilisation function should take the form of a credit line backed by the European Stability Mechanism (ESM) (see EUROPE 12044). And over and above these differences of opinion concerning the architecture of the fiscal capacity, some member states, such as the Netherlands, are opposing the creation of the stabilisation function, for example (see EUROPE 12052).
On the deepening of the Eurozone, the French determination is coming up against German misgivings, with Berlin not seeming to wish to move forward on anything but the reform of the ESM and the creation of a backstop for the Single Resolution Fund (see EUROPE 12088), the financial arm of Banking Union in the Eurozone.
InvestEU. The ministers will discuss the Commission’s proposal to set in place the financial instrument InvestEU after 2020, taking inspiration from the positive experiences of the Juncker investment fund (see EUROPE 12035).
Readers may recall that this proposal aims to bring together in a single instrument 14 different financial instruments aiming to support investment. InvestEU will provide project-owners with a public financial guarantee of €38 billion to be fed into by several financial partners, principally the European Investment Bank (EIB).
This proposal, which has been welcomed by economic operators (see EUROPE 12037), was met by the EIB with a certain scepticism (see EUROPE 12065). Whereas it is entirely responsible for managing the European Fund for Strategic Investments (EFSI), the financial arm of the Juncker plan, the management of InvestEU would be the responsibility of the Commission in cooperation with the EIB, the national development banks and international financial organisations, under the proposal. However, the EIB does not feel that it would be useful to give the Commission a banking role.
The ministers will discuss the added value of merging 14 financial instruments into one and the governance of this possible future InvestEU fund.
Future of the EIB. Over lunch, the ministers will discuss the future of the EU Bank, which celebrates its 60th anniversary in 2018. The Austrian Presidency will ask a number of questions: - should the added financial value obtained by a project-owner assisted by the EIB be given a more prominent role?; - Do regional or national strategies help to better focus the Bank’s actions?; - How can the EIB’s equity business activities be better framed?; - Should the EIB be externally audited?
In a preparatory document, the EIB argues that the financial added value (below-market interest rates, long loan maturity) should play a part, but without obscuring other factors, such as the financial engineering advice available and the catalyst effect of aid signed off by the EIB on other donors. The EU Bank is unconvinced by national or local strategies, which it considers would reduce its flexibility in channelling aid into the less developed geographical areas. It is not opposed to a discussion on how to improve the control of its activities if the approach decided upon respects its mandate and does not hamper its activities.
Virtual currencies. Virtual currencies will also be on the finance ministers’ agenda.
“There is a broad consensus that crypto-assets at this stage do not pose major risks for financial markets’ stability, since overall volumes still remain relatively low”, said the Austrian Presidency in a specific note, in reference to the stances taken by the G20'(see EUROPE 12068).
The aim of the discussion, the Presidency explains, will be to broaden the debate and provide any necessary orientations on the next steps. So far, the EU has shown caution and seems to prefer an international response (see EUROPE 11969).
Amongst other things, the member states will be called upon to give their opinions on any shortcomings in the European regulatory framework to tackle the risks posed by virtual currencies and possible options to fully explore the potential they offer.
Financial stability and increase in interest rates. Finally, on the basis of a working document issued by the think tank Centre for European Policy Studies, the ministers will hold an exchange on the risks to financial stability from the increase in the interest rates of the European Central Bank (ECB).
Readers may recall that the ECB will keep its key interest rates unchanged beyond the end of the mass security buyback operation (‘quantitative easing’ or QE), which is scheduled for the end of this year, until the inflation trajectory has reached a level in line with its mission to contain the increase in prices at a level close to but below 2% (see EUROPE 12010). (Original version in French by Marion Fontana, Mathieu Bion and Lucas Tripoteau)