EU Digital Tax Proposal Has ‘Reasonable Chance,’ Moscovici Says

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By Isabel Gottlieb

The EU’s proposal to tax the digital economy has the support of 20 of 28 member nations, European Taxation Commissioner Pierre Moscovici said April 19.

“I’d say there’s a reasonable chance—or a reasonable risk, depending on where you stand,” that the proposal is adopted, Moscovici said at an American Enterprise Institute forum in Washington.

The European Commission March 21 proposed a temporary or “interim” 3 percent turnover levy on the revenue of large technology companies with a 750 million euro ($927.5 million) global turnover and 50 million euros in EU sales The proposal is part of an effort to ensure digital companies, like Alphabet Inc.'s Google and Facebook Inc., are paying the taxes they owe.

The proposal has to be passed before the end of this year if it is to be successfully enacted, since there are European parliamentary elections in 2019, Moscovici said.

Fans and Foes

Among the 20 member nations Moscovici described as either “supportive or accepting” of the proposal are the five biggest economies in the European Union: France, Germany, Italy, Spain, and the U.K..

The more “reluctant” members on the digital proposal include Ireland and Luxembourg, he said. Ireland, which is home to the European headquarters of Google and Facebook, has been the most outspoken against the measure since the bloc began discussing it.

The proposal will need unanimous support to pass.

“Those who fear the tax have to be reassured by that,” Moscovici said. “For those who hope for it, there is still a bit of work to be done.”

Acting ‘Sooner Rather than Later’

The Organization for Economic Cooperation and Development released its own report on digital economy taxation on March 16.

“We welcome the OECD’s interim report,” Moscovici said. “But let’s also be honest. The international progress we have seen does not give cause for much optimism on either the base or the scope of digital reforms.”

“There has been very little appetite among key global players to find concrete solutions until now,” he added. “Meanwhile, EU member states have been very clear that they want solutions sooner rather than later.”

The EU’s proposal includes interim and long-term measures. The long-term solution would amend the pending EU common consolidated corporate tax base legislation to establish a “virtual” permanent establishment and ensure tech companies pay taxes where profits are earned.

The aim of the interim plan is to put temporary measures in place so EU member states don’t act unilaterally, Moscovici said. Hungary, Slovakia, and Italy have adopted national digital online turnover tax regimes in the last year.

“My preference, my priority, goes to structural reform,” he said.

“But if there is an interim proposal, it’s also because I’m aware that the structural reform will take some time,” he added. “I’m pushed by member states, and also I’m pushed by the reality that if we don’t act collectively, they will act nationally. And that acting nationally is always worse for business than acting collectively.”

Targeting Digital Companies?

The U.S. and the OECD have both spoken out against digital taxation plans that would “ring-fence” the digital economy, applying a different set of taxes or rules to digital companies.

Moscovici said the EU proposal isn’t meant to single out any particular companies. He made a similar pitch in a March letter to U.S. Treasury Secretary Steven Mnuchin.

“Our proposals are absolutely not about targeting the United States, or any individual American companies,” he said, repeating that the EU proposal was not an “anti-American approach.”

“I hate them to be called ‘GAFA tax,’ because that’s not what they are,” he added, referring to the acronym for the tech giants Google, Apple Inc., Facebook and Amazon.com.

“Our goal is to ensure a level playing field for all businesses operating in our single market, whether they are EU-based or not, digital or traditional, large or small,” he said. “So it’s a wider reform of our corporate tax system.”

To contact the reporter on this story: Isabel Gottlieb in Washington, D.C. at igottlieb@bloombergtax.com

To contact the editor responsible for this story: Kevin A. Bell at kbell@bloombergtax.com

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