EU plans 3% digital services tax by end of 2018
6 Nov 2018
The EU is considering proposals to introduce a digital services tax on multinational tech giants, mirroring the UK's proposed digital tax, with the French finance minister calling for agreement before the end of the year
6 Nov 2018
The Economic and Financial Affairs Council (Ecofin) discussed plans for an EU Directive on a common member-wide approach for a digital services tax (DST) targeting revenues resulting from the sale of digital services, which would see the introduction of a 3% tax on global digital companies that meet specific criteria.
The proposed digital services tax would apply only to entities that meet two conditions: the total amount of worldwide revenues reported by the entity for the latest complete financial year for which a financial statement is available exceeds €750m (£654m); and the total taxable revenues earned by the entity within EU member states during that financial year exceeds €50m.
In addition, the proposal sets out rules ‘for establishing a taxable nexus for digital businesses operating across border in case of a non-physical commercial presence’, and the draft includes a ‘sunset clause’ that means that it would cease to be valid in the event of a global agreement on the taxation of digital services.
According to Wopke Hoekstra, representing the Netherlands, ‘it is a question of the right balance that we are trying to achieve here. Like most countries we prefer a global solution but we are also open to having a debate here on an interim solution...We think it is more viable to have something done by the EU than having 28 different regimes.’
Pierre Gramegna, minister for finance of Luxembourg, questioned which services would be covered by the digital tax: ‘If the answer is yes, we would like to know what the precise limits would be. Luxembourg prefers a level playing field that goes beyond the EU, and we think this should be presented at the level of the OECD'.
‘It would be nice to have a quick fix - if it is a fix. It is not enough to be quick,’ said Kristian Jensen, representing Denmark. ‘I do agree this is a decision we can take on our own…but it would be reckless not to look at the kind of consequences and responses we can expect.’
‘We should also take into account the worries of European businesses, who are saying that this is not a tax which will have a good impact on European business…Denmark cannot support the proposal as it stands.’
The question of the proposed ‘sunset clause’ was raised by Vilius Šapoka, minister for finance of Lithuania: 'In our opinion the most important thing is that the end of the digital services tax coincides with an international agreement...the legal basis should give us maximum certainty and prevent legal issues in the future.
'We see a political imperative to explore ways forward, however we should be aware that the tone the EU sets may have an impact on our competitiveness.'
French finance minister Bruno Le Maire called for the tax to be finalised by the end of the year and, despite the reservations of some Ecofinmembers, the proposed measure has broad support from EU countries. He also suggested that US response to the UK plans for a digital services tax could shape the EU approach.
The UK is considering introducing a digital services tax, first announced by the Chancellor in this month's Budget, but detailed plans about how this would work in practice have not been released by the UK goverment.
It is understand that 11 EU member states are already considering their own unilateral measures. The EU tax is due to be ratified by the European Commission by the end of the year.
Bringing the open council meeting a close, Austrian finance minister Hartwig Löger concluded: 'This discussion about taxation is a discussion about fairness - between the traditional and the digital economy. It is not a bashing of the digital economy.
'We conclude that there is no total consensus but broad support...we seek to find a compromise out of the discussions.'
Report by James Bunney