Estonia Welcomes Chance to Steer in EU Digital Tax Storm

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By Joe Kirwin

EU presidency holder Estonia has committed to doubling down on solving the bloc’s tricky digital economy tax issues when EU finance ministers meet Sept. 15-16, following revelations U.S.-based Airbnb paid only about 100,000 euros ($117,000) in taxes in France in 2016.

Although a previous Estonian presidency plan to find taxation solutions in the digital economy received scant attention, the Baltic nation now finds its agenda a high political priority. That’s partly a result of new French Finance Minister Bruno Le Maire’s insistence Aug. 9 that Airbnb Inc.'s 2016 tax bill was “unacceptable.”

Le Maire added that urgent measures are needed to make sure digital companies, whether they be Silicon Valley giants Apple Inc. and Facebook Inc. or others in the sharing economy such as Airbnb, pay more in tax.

“The success and competitiveness of the digital economy can not lie in the non-taxation of profits,” Estonian spokeswoman Annikky Lamp told Bloomberg BNA in an Aug. 11 email. “The challenge for Estonia is to suggest new international tax rules that take into account the development of digital solutions and re-establish the equal taxation of corporate profits irrespective of how they were earned.”

CCTB One Option

One avenue for seeking EU digital economy tax solutions runs through the pending negotiations for the common corporate tax base. Estonia is pushing for member states to agree on new “virtual” permanent establishment terms that are adapted to companies doing digital business in multiple member states.

However, Estonian officials, with a role to steer negotiations in the Council of Economic and Financial Affairs, have acknowledged that reaching unanimous consent on the CCTB will be difficult.

“It might be that we will push for a separate agreement on the terms of a permanent establishment,” Dmitri Jegorov, Estonia’s undersecretary for taxation, told Bloomberg BNA in June when the presidency agenda was launched July 1.

Prior to the political storm triggered by Le Maire Aug. 9, Estonia emphasized that it would use its presidency to help the EU forge a consensus on digital tax solutions that could feed into the ongoing Organization for Economic Cooperation and Development process, which is supposed to present plans in 2018.

Jegorov told Bloomberg BNA that any agreement should not abandon the principle of “taxing where value is created.”

Airbnb Responds

The difficulties in trying to find digital taxation solutions—especially when it involves the “sharing” or “collaborative” economy where individuals or companies use online platforms to provide lodging, transportation, and other services—is underscored by a statement issued Aug. 10 by Airbnb in response to Le Maire’s comments. In an obvious effort to separate itself from big tech companies such as Google and Apple, as well as other traditional multinational companies that shift profits across borders to low-tax zones, Airbnb noted that its model is “fundamentally” different from that of companies that take “large sums of money” out of the regions where they’re based.

“The vast majority of the money from each booking stays with the local host, in the local area and is subject to local taxes,” Belgian-based Airbnb spokesman Simon Letouze told Bloomberg BNA via an Aug. 11 email. “In many places these bookings also generate tourist taxes which are paid to the city and bring in a new form of tourism benefiting local businesses, which will also generate corporate taxes.”

Airbnb estimates that it boosted the French economy by 6.5 billion euros ($7.6 billion) in 2016.

Recognizing the complex issues digital economy taxation presents, the European Commission, which has the sole right to propose legislation in the EU, also expressed caution after Le Maire said France and Germany will present proposals in September in Tallinn.

“These are complex issues and they also require unanimity” to be approved in the Council of Ministers,” European Commission spokeswoman Vanessa Mock said Aug. 11 at an EU executive body news conference. “It is essential that we maintain a level playing field so that all companies pay their fair share, whether they are large or small, whether more or less digitalized, EU or non-EU based.”

EU finance ministers are due to meet Sept. 15 and 16 in Tallinn for their bi-annual informal meeting. The meetings usually are dedicated to finding consensus on key, controversial issues that later can be addressed formally when the Council of Ministers meets in Brussels.

To contact the reporter on this story: Joe Kirwin at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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