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No Agreement Yet On EU Digital Services Tax

by Ulrika Lomas,, Brussels

09 November 2018

European Finance Ministers have failed to reach an agreement on the EU's proposed digital services tax, following opposition from some member states.

The European Commission has proposed the introduction of a temporary three percent excise tax on turnover from certain online activities. The Commission has said that the measure should be temporary, pending a long-term international agreement on how to tax the profits of digital companies. An agreement must be reached on the proposals by all member states.

The proposals were discussed at a November 6 meeting of the Economic and Financial Affairs Council (ECOFIN).

According to the Council, the discussion focused on two key issues: the scope of taxable services covered by the proposed regime and the length of time any new tax would be in operation.

The Council said that progress has been made on a number of issues, including definitions, tax collection, and administrative cooperation. It explained that member states agree that any new tax should expire once a comprehensive solution to taxing the digital economy has been found at an international level, through the OECD.

Nonetheless, the Council stated that "there are still differences between member states on several issues, including the precise scope of services which would be subject to the future tax."

According to reports, Ireland, Sweden, and Denmark were all critical of the measure during the meeting.

Kristian Jensen, the Danish Finance Minister, told ministers that it is "very difficult to see an agreement on the digital tax because so many technical issues are not solved."

Jensen's Irish counterpart, Paschal Donohoe, raised concerns about basing the tax on where consumers are located rather than on where services are provided. "We are net exporters. What kind of reaction would we have if this model was imposed on us?", Donohoe said.

Austria, which currently holds the presidency of the Council, remains determined to broker a deal.

Hartwig Loger, Austrian Finance Minister and Chair of the ECOFIN Council, said after the meeting: "We need to adapt our rules to the digital transformation of the economy and digital companies have to pay their fair share of taxes. The Presidency wants to achieve concrete results by the end of the year. Time is short but I'm convinced that with the appropriate political will, we can get there."

Additional work will now take place at a technical level, with the aim of reaching an agreement at the Council's December 4 meeting.

EU Vice-President Valdis Dombrovskis told a press conference: "Reaching [a] deal as soon as possible is important for two reasons. First, our taxation system needs to be updated to reflect [the] economic realities of the 21st century. Our economies are increasingly digital and this trend is here to stay."

"Second, there is a risk of fragmentation in the single market along the lines of digital tax. Some member states have already introduced [a] digital tax. Others are working towards this. Still others are not planning anything at this stage as they wait for [a] European or international solution."

TAGS: tax | European Commission | Denmark | Ireland | Organisation for Economic Co-operation and Development (OECD) | corporation tax | excise duty | ministry of finance | internet | transfer pricing | tax rates | Austria | Sweden | tax reform | European Union (EU) | services | Europe | BEPS

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