All I want for Christmas are Corporate Taxes
Or better yet, what we have become accustomed to, back-pedalling on said commitment. Upgrading current tax rules to address the digital reality, with digital activities becoming part of every sector’s economic activity, is proving an increasingly divisive issue for EU governments.
The long-awaited agreement on a digital services tax (DST) failed to materialise at a meeting of EU Finance Ministers in early December, after France and Germany introduced a last minute watered-down proposal to target digital companies at a rate of 3% of turnover, this time covering only advertising activities.
In a bid to move quickly at EU level, the two countries have been pressing since 2017 for legislative action based on a tax on turnover generated in Europe by digital companies, irrespective of on-going discussions at G20/OECD level.
This new proposal is a major concession for France (less so for Germany who seems to have been dragged along), who has been cautioning that inaction at EU level will lead to a patchwork of national schemes. Over the course of the discussions since March 2018, not only has France agreed to delay adoption of the proposal to March 2019, but also that the tax would enter into force in two years’ time (January 2021) making it possible that it would not come into force at all, if an international agreement at OECD level is reached by then.
Despite these compromises, there are still sceptical voices in the Council, though admittedly EU countries are yet to reject the proposal outright. Parliament could not pass on the opportunity to discredit the Council, with the Socialist group calling the lack of deal an embarrassing moment for Europe that will allow digital services to continue paying less than half as much in taxes as traditional brick and mortar companies. For tech companies, the victory would be short-lived as a tax focused on digital advertising is equally concerning, potentially precedent-setting, and they would prefer the Council oppose it altogether.
On a broader scale, this is yet another display of the difficulty to muster enough strength to go beyond the limits of unanimity which often lead the entire process to paralysis. Not only is progress being prevented on the digital tax proposals, but the Common Consolidated Corporate Tax Base proposals (CCTB & CCCTB) too are blocked in the Council. And even in exceptional scenarios where QMV is permitted (Country-by-Country Reporting proposal deemed a transparency initiative) more time has been spent on disputing the legal basis than the technical shortcomings of the proposal.
A possible move from unanimity to QMV on certain tax files, as the next Commission is certain to explore, would no question enable progress. Member States agreeing to relinquish a droplet of sovereignty? That is as likely as my bonsai making it through the winter – one can’t help but be hopeful though likely to result in disappointment.
*With thanks to eagle-eyed Elias Papadopoulos