Plan for EU digital tax on firms' turnover draws sharp criticism

SOFIA - 28 April 2018: A European Commission plan to tax the digital turnover of large companies drew scepticism on Saturday from some European Union states and the global rule-setting body on tax matters.

The criticism came at the first meeting of EU ministers to discuss the plan, which was presented by the Commission last month and entails a 3 percent levy on the digital revenues of large multinational corporations, such as Google, Facebook and Amazon.

Large Web companies are accused by some EU states of paying too little in Europe, exploiting an outdated tax system that has allowed them to shift profits to low-tax countries.

Ministers from smaller states, including Luxembourg and Malta, oppose the plan, arguing that an overhaul of digital taxation should be done at global level and with a long-term solution.

“It’s quite complicated. We are on the cautious side,” Maltese Finance Minister Edward Scicluna told reporters before the ministerial meeting in Sofia, the Bulgarian capital.

Tax reforms at EU level require unanimous backing of all its 28 member states, contrary to most legislative reforms which are approved by qualified majority.

The commission said a long-term, global solution based on a new method to calculate tax rights was the preferred option, but it would take a long time to be approved.

It pushed in the meantime for a temporary, shorter-term option that would quickly recoup part of the tax revenues lost by EU states to digital giants, the commission said.

“I think it is a wise proposal,” EU Tax Commissioner Pierre Moscovici said on arrival at the meeting.

Large EU countries like France, Italy and Spain, support the commission’s plans. Germany has a more cautious approach and questions the rationale of a tax on turnovers.

Such a tax would be a major shift from existing rules, whereby companies are charged on their profits and pay no tax if they report losses.

Asked whether a turnover tax was inconsistent with global practices, Angel Gurria, head of the Organisation for Economic Cooperation and Development (OECD), the body that coordinates tax policies among rich countries worldwide, urged not to address the problem hastily.

Gurria, who was attending the EU meeting, said work for a global reform, which would include the United States, Japan and China, was already under way and cautioned against adopting measures that could be inconsistent with a long-term solution.

He said the OECD was ready to speed up its work for a global overhaul of digital taxation, possibly advancing to next year the adoption of a blueprint on the issue that is currently due in 2020.