There was a dramatic turn of events on Tuesday 4 December, regarding the proposal to tax the gross income of digital platforms at a rate of 3% ('digital services tax' or DST). It was not the compromise text from the Austrian Presidency of the Council (see EUROPE 12148) that European finance ministers discussed at the Ecofin Council meeting, but instead a Franco-German statement prepared overnight between Monday and Tuesday.
Although a failure was announced (see EUROPE 12150), France and Germany arrived with a watered-down DST proposal that would only apply to online advertising, which was considered the most profitable activity, and would no longer apply to users of multifaceted digital interfaces or the sale of data.
However, their joint statement states that the Directive would not prevent Member States from introducing a digital tax on a much broader basis in their national legislation.
The 3% rate is retained, as well as the principle of a sales tax. The Franco-German proposal anticipates that the DST will be adopted by March 2019 at the latest, but only enters into force on 1 January 2021, if no international solution has been agreed.
If, on the other hand, an international solution has been found at the OECD and integrated into Community law before that date, the DST could then be withdrawn by a simple majority vote. In any case, the proposal provides for its automatic termination in 2025.
"As with this European compromise proposal, some will be disappointed, they will say it's not enough, that it doesn't go far enough (...) Others, on the contrary, will speak in a few moments and they will say ‘no way’ (...) it's like that, it's Europe, but at some point you have to move forward," said French Minister Bruno Le Maire during the meeting.
The majority of Member States have agreed, in a spirit of compromise, to continue discussions along these lines, although they still have to analyse the last-minute declaration in detail and are waiting to see how it will be translated into a new compromise text.
Nevertheless, some reservations were expressed. In particular, Portugal urged caution in allowing Member States to adopt more far-reaching national measures, in order to avoid fragmentation within the EU.
Several countries, including Slovenia and Latvia, have also pointed out that it will be necessary to balance the revenues generated by this tax, with the costs of implementation. Estonia has also indicated that it would have difficulty accepting such a small tax base.
Ireland, Finland, Denmark and Sweden reiterated their opposition to a European solution in principle, but promised to engage "constructively" in future discussions.
The European Commissioner for Taxation, Pierre Moscovici, considered that the Franco-German proposal represented "progress” on the whole. He explained to the press that this proposal can be seen as a "slight retreat", if one considers the high expectations, or as a "step forward" from the total failure of the text.
However, before the ministers, he wanted to clarify things: "the Commission cannot and does not wish to make a new proposal". This is because the legislative agenda has been completed, but also because, in his opinion, the Franco-German proposal is fully compatible with the Commission's proposal, which needs to be adapted.
France digresses a little further
Bruno Le Maire also shared his feelings about the meeting with the press. "The tone around the table changed this morning", he said.
While France had already agreed to delay the application of the directive (see EUROPE 12131), on Tuesday it made yet another concession in order to see the project it has been defending since the beginning succeed.
“Rather than intransigence, I prefer a concrete result, even if it is more modest than I would have liked”, the Minister explained.
According to a French government source, the restriction on the scope of online advertising was granted to Germany in exchange for its agreement to a sales tax. However this will not prevent France from looking at ways to extend it to online markets and the sale of personal data on a national level, she said.
Unlike Germany, France still does not believe in a quick agreement at the OECD. The United States is reportedly shifting the debate from digital taxation to intangible taxation, which is much more complicated to understand, said the same source.
The tax on digital services is therefore not over yet, but they have come a long way from the original aims of the Commission and also those of the European Parliament (see EUROPE 12151). The Council's group of experts is expected to meet next week to carry on the work. (Original version in French by Marion Fontana)