There is both optimism and caution about digital taxation. This is the message that the European Finance Ministers gave, on Tuesday 16 March, at the ‘Ecofin’ Council, fearing that the European initiatives could jeopardise the international negotiations underway at the OECD on international tax reform.
The change in attitude of the new US administration, including the abandonment of the demand for a voluntary scheme (see EUROPE 12667/4), is widely seen as a new dynamic that greatly strengthens the chances of an agreement at the OECD by mid-2021. And this, especially, should not be wasted.
According to an EU source, at least 22 Member States took the floor on Tuesday during the round table discussion on the subject, which took place behind closed doors. Everyone, including the European Commission, is said to have recognised that an international solution remained the preferred option.
Member States have reportedly widely emphasised the need for EU work in this area not to interfere with that of the OECD and have called on the Commission to be cautious both in terms of the timing of its future initiatives and in its communication on the subject.
In a lengthy intervention, Germany is said to have insisted on the need to seize the current opportunity to have an agreement at the OECD. In the same vein, France reportedly stressed the importance of not hindering the process at the OECD and of well articulating the different initiatives.
The problem is that the European Commission is, for the moment, bound by the conclusions of the July 2020 European Council and is committed to presenting, by June, a proposal for a new resource for the EU budget based on taxation of the digital sector.
According to the same source, the Commission has given very few details on its intentions in this area, despite requests for clarification from several ministers. It also reportedly stressed that its proposal for a digital levy would be a separate instrument, which should not be linked to the corporate tax rules being negotiated within the OECD.
In his concluding remarks, EU Taxation Commissioner Paolo Gentiloni is said to have indicated that the Commission would not present any proposal until there was more “clarity” on whether or not an agreement could be reached at the OECD.
At a press conference after the meeting, Commission Executive Vice-President Valdis Dombrovskis expressed confidence that an agreement could be reached at the OECD by mid-2021.
“In parallel, as mandated by the European Council, we are continuing preparations for proposing an EU digital levy to serve as an EU own resources by 2023” and “complement the OECD process”, he said.
The need to keep the two pillars of reform together in one package was also reportedly mentioned several times.
Several ministers are also said to have stressed that the Covid-19 crisis further reinforces the priority given to this issue, with digital companies widely seen as the big winners of the crisis.
Pending an agreement at the OECD, the Portuguese Presidency of the EU Council intends to encourage “internal reflection in the EU Council” particularly with regard to the compatibility of the solution to be found at the OECD with EU law, Portuguese Finance Minister João Leão told the press.
The subject is on the agenda of the European Council on 25-26 March. EU Heads of State and Government are expected to confirm their commitment to a global solution by mid-2021 (see EUROPE 12677/14).
In addition, digital taxation is expected to be discussed again at the ‘Ecofin’ Council in June. (Original version in French by Marion Fontana)