European Finance Ministers took stock on Tuesday 21 January of the digital tax reform negotiated at the OECD (see EUROPE 12385/7), ahead of the next meeting of the OECD’s Inclusive Framework on BEPS on 29-30 January, which is expected to make further progress on digital taxation (Pillar I).
According to a European source, the discussions, which were held in camera, revealed nothing “new”. Luxembourg, which was behind the inclusion of the item on the meeting agenda, also reportedly asked for clarification on the solution advocated by the Americans at the OECD based on the ‘safe harbour regime’, an approach that would mean leaving it up to companies to decide whether or not to apply the new system laid down by the OECD.
The large Member States such as France, Germany, Italy and the United Kingdom, which are in favour of the proposal on the table (see EUROPE 12377/23), which provides for a binding system for digital taxation, reportedly opposed the US solution, insisting on the need to move forward quickly in the negotiations.
At the European level, a sort of consensus seems to be emerging on the principles supporting the approach proposed by the OECD for Pillar I, our source noted. Nevertheless, Member States remain divided on working methods.
At a press conference, Executive Vice President Valdis Dombrovskis once again called on Member States to “speak with one voice in the OECD”. However, several countries, including Ireland, Sweden and Denmark, continue to be reluctant to do so and are putting forward their specific national problems.
At the end of the meeting, the Irish Finance Minister, Pascal Donohoe, in fact said that he had stressed the need for the future agreement and the European position to “respect the role and the needs of small and medium-sized countries”.
As for Pillar II on minimum effective corporate taxation, work is not at the same stage, and Vice-President Dombrovskis expressed concern about the lack of progress.
European countries are divided on this issue. There are those who want the two pillars to move forward in parallel and those who are more cautious, wishing to ensure that the solution proposed to the OECD is compatible with European law. In addition, some Central European countries, such as the Czech Republic and Poland, would like to have derogations.
Franco-American truce
It was on the sidelines of the ‘Ecofin’ Council that real developments on digital taxation were finally observed. The French Finance Minister, Bruno Le Maire - who was not present in the room at the time of the discussion on digital taxation, according to our information - nevertheless made a statement on his arrival at the meeting.
“President Emmanuel Macron and President Trump had a very constructive discussion on Sunday evening and agreed to avoid any escalation between the United States and France on this issue of digital taxation. I think this is very good news”, he said.
On Wednesday, at the World Economic Forum in Davos, Bruno Le Maire is due to meet his American counterpart, Steven Mnuchin, to try to reach a “final agreement” to avoid American sanctions in retaliation for the French ‘GAFA’ tax and to reach an agreement at the OECD (see EUROPE 12406/14).
Asked about a possible suspension of the French tax to ease tensions, Mr Le Maire dodged the question, not wanting to go into the details of the negotiations. Nevertheless, France is considering suspending advance payments on the digital tax for 2020 until an agreement is reached at the OECD, a source confirmed to EUROPE on Tuesday.
“It remains a difficult negotiation. On these taxation issues, the devil is in the details”, the French minister concluded, who nevertheless hopes for an agreement at the OECD by the end of 2020. (Original version in French by Marion Fontana)