Brussels presses pause on plans for an EU-wide digital tax

Brussels has “put on hold” plans for an EU-wide digital tax that would target tech giants like Amazon, Facebook and Google.

It comes under pressure from the United States, who believe that the EU tax has been made redundant by a separate, landmark treaty reforming the international tax system.

First agreed by the G7, It includes plans to redistribute taxation rights and to set a worldwide minimum tax rate of 15 percent for companies.

It received another boost at the weekend when the G20 finance ministers and central bank governors gave the go-ahead.

“Successful completion of this process requires one final effort, one final push from all parties, and the Commission is determined to focus on that effort,” a European Commission spokesman said Monday. “For this reason we have decided to stop our work on a proposal for a digital release.”

The executive plans to “review” its proposal in October when the G20 wants the final technical details.

Growing fragmentation

The introduction of an EU-wide tax on goods and services sold online in the EU single market is part of an attempt to top up Brussels’s budget and finance the costly recovery from the coronavirus.

The proposal on the EU digital tax, which has not yet been officially made in detail, was intended to replace the various taxes that some member states such as France, Spain and Austria have introduced in recent years.

These countries argue that big tech companies like Amazon, Facebook and Google don’t pay their taxes fairly because taxation rights are still determined by where the company is based – usually in countries with low tax rates like Ireland – rather than where the goods are and are Services are bought by customers, which in their opinion marks the moment when the real revenue is actually generated.

Concerned about the increasing fragmentation of the internal market, the European Commission began work on an EU-wide digital tax with the aim of making it operational by 2023 for the later OECD agreement.

However, the United States disagrees, arguing that such a digital levy would indeed be discriminatory as the primary target would be American Silicon Valley companies conveniently dominating the online services market in Europe and elsewhere.

Since the G7 reached the groundbreaking tax deal, Washington has increased pressure on Brussels to delay the adoption of the proposal and has urged its Atlantic allies to at least wait for the technical details of the OECD deal to be finalized.

“The agreement that we reached in the OECD framework discussion calls on the countries to agree to reduce existing digital taxes, which the US sees as discriminatory, and to refrain from similar measures in the future,” said US Treasury Secretary Janet . Yellen, who is visiting Brussels this week.

“So it really is up to the European Commission and the members of the European Union to decide how to proceed. These countries have however agreed to avoid and reduce taxes that discriminate against US companies in the future.”

The European Commission spokesman refused to say whether US lobbying played a role in his decision to pause his digital tax plans.

What is the breakthrough tax treaty?

The draft text, approved by 90% of global GDP, is based on the two-pillar approach of the OECD. Its main goal is to increase fairness, security and stability in the global tax system.

• The first pillar focuses on the partial redistribution of taxation rights to ensure that the taxation of profits is no longer determined solely by the physical presence of a company. With a complex formula, countries could get a share of the profits multinationals make in their markets. More than $ 100 billion in profits are expected to be redistributed.
• The second pillar focuses on setting a minimum effective tax rate of 15% on the profits of large multinationals, regardless of their location. The OECD estimates that the minimum tax rate would generate around $ 150 billion annually in additional global tax revenue.

The United States argues that the first pillar will be enough to address the challenges posed by digitizing the economy and will make the EU digital tax obsolete and unnecessary.

Earlier this month, Ireland, Hungary and Estonia joined a small group of six countries, including two Caribbean tax havens to oppose the OECD deal. The three countries apply tax rates that fall below the 15 percent threshold. Your decision overshadows the uniform position of the EU, because according to EU treaties tax reforms require the unanimity of the 27 member states.