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Still No Deal On EU Digital Services Tax

by Ulrika Lomas,, Brussels

07 December 2018

European finance ministers were again unable to reach an agreement on a proposed digital services tax, despite attempts by Austria, France, and Germany to broker a compromise.

In March, the European Commission proposed the introduction of a temporary three percent excise tax on turnover from certain online activities. The tax would apply to companies with total annual worldwide revenues of at least EUR750m (USD850.6m) and EU revenues of EUR50m. The Commission had said that the measure would be temporary, pending a long-term international agreement on how to tax the profits of digital companies.

EU finance ministers failed to reach an agreement on the proposals at their last meeting in November, with Ireland, Sweden, and Denmark the most vocal in expressing their concerns.

At a December 4 meeting of finance ministers, Austria, which holds the Council presidency, put forward a compromise text "containing the elements that have the most technical support from member states."

However, according to a Council statement, a number of member states were unable to "accept the text for political reasons as a matter of principle, while a few others were not satisfied yet with some specific points in the text." The proposals must be unanimously agreed by all EU member states.

The compromise text argued that the tax should be "an easy-to-implement measure targeting the revenues stemming from the supply of digital services where users contribute significantly to the process of value creation." It should apply "to revenues resulting from the provision of certain digital services only."

Ministers also examined a joint declaration issued by France and Germany, which reined in the scope of previous schemes. The declaration called on the Commission and Council to "amend and focus its draft directive for a digital services tax on a tax base referring to advertisement, on the basis of a three percent tax on turnover." It said the Commission and Council should in due course submit proposals "on taxing the digital economy and minimum taxation in line with the work of the OECD."

France and Germany urged the Council to adopt the directive by March 2019 at the latest. The tax would enter into force on January 1, 2021, if no international solution has been agreed by that date.

The document recommended that if an international solution was agreed and translated into EU law before January 1, 2021, the implementation of the digital tax directive could be withdrawn and expire by 2025. It stated that France and German expect the OECD will reach an agreement by 2020.

The Presidency recommended that the Council's working group continue to work on the basis of the compromise text and the Franco-German declaration, "with the aim of reaching an agreement as soon as possible."

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, tweeted that the Commission hopes member states "can forge a compromise ASAP in 2019" under the incoming Romanian Presidency. He added that "all companies should pay their fair share of tax."

Tax Commissioner Pierre Moscovici said that he would "not give up." He stressed the need to "continue talking and find an agreement by March."

TAGS: tax | European Commission | Denmark | Ireland | law | Romania | tax thresholds | internet | multinationals | transfer pricing | tax rates | Austria | France | Germany | Sweden | European Union (EU) | services | Europe

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