EU to Sign Off on Digital Tax Plan, VAT Overhaul on Dec. 5

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By Joe Kirwin

EU finance ministers will give the green light Dec. 5 for the European Commission to propose, in early 2018, an equalization tax on internet companies such as Facebook Inc., Google Inc., and Amazon.com Inc.

At the same time, EU finance ministers will sign off on a controversial proposal that will make online marketplaces such as Ebay Inc., Alibaba Group Holding Ltd. and Amazon responsible for collecting VAT on sales by non-EU based online merchants to EU residents.

Juri Laas, spokesman for the Estonian presidency, which will chair the Dec. 5 meeting of EU finance ministers, confirmed to Bloomberg Tax Nov. 30 that EU member nations agreed Nov. 29 on final terms for the digital taxation provisions and the VAT e-commerce legislation, and it will be approved without discussion.

After months of haggling over how to address concerns that digital companies aren’t paying their fair share of tax, EU member nations have agreed that a global long-term solution should be pursued in the Organization for Economic Cooperation and Development. However, the resolution to be rubber-stamped Dec. 5, seen by Bloomberg Tax, says the European Commission can include an “equalization levy based on revenues from digital activities in that would remain outside the scope of double tax conventions concluded by member states.”

VAT on Small Parcel Imports

The agreement on the VAT e-commerce legislation also includes a provision that would repeal current VAT exemptions on small imported parcels with a value of 22 euros ($26.22) or less. In addition, the agreement includes a statement, seen by Bloomberg Tax, that gives a range of instructions on how the European Commission should shape legislation making online market places liable for collecting VAT from foreign online merchants.

EU finance ministers Nov. 7 failed to pass the VAT e-commerce package. Germany led countries in raising concerns about imposing VAT on small parcels and making online marketplaces liable for collecting VAT.

EcommerceEurope, a Brussels-based trade association that represents online marketplaces such as Ebay and Amazon, reiterated Nov. 30 its objection to making online marketplaces liable for collecting VAT.

“The proposed solution to consider marketplaces as ‘taxable persons’ for the supply of goods promoted via marketplaces is in stark contrast with the current standard EU VAT rules, whereby the taxable person in a supply of goods is usually the seller (unless the reverse charge scheme applies),” Ecommerce Europe Director of Public Affairs Luca Cassetti told Bloomberg Tax in an email on Nov. 30. “Such a derogation appears an unjustified, non-proportional deviation from the principles inspiring the VAT framework.”

France Push on Equalization Tax

France led 10 EU member nations earlier this year in calling for the EU to adopt legislation that would allow EU member states to adopt a temporary digital equalization levy, which French Economy Minister Bruno Le Maire insists is essential in order to force large internet companies to pay their fair share of tax.

However, EU member nations led by Ireland, Malta, Cyprus, Luxembourg, and Sweden have argued against the EU backing an equalization tax. Instead they want the EU to wait for whatever long-term solution on digital taxation is agreed to in the OECD.

Sure Bet

Estonian Under-Secretary for Tax and Customs Policy Dmitri Jegorov, who chaired the EU member state negotiations on the digital taxation conclusions to be adopted Dec. 5, told Bloomberg Tax in a Nov. 30 email that he “would personally bet a safe amount of money’’ that the “the equalization tax will be there [in the commission proposal] in some sort of form.’'

Another EU diplomat—speaking to Bloomberg Tax Nov. 30 on the condition of anonymity—who also participated in all of the digital taxation negotiations in the past two months, agreed with Jegorov.

“The equalization levy will be in the commission proposal—you can be sure of that,” the EU diplomat said. “You have to remember that the European commissioner for taxation is French [Pierre Moscovici] and France is determined to have the EU endorse an equalization tax as a temporary measure.”

The EU diplomat added that “just because the European Commission will include the equalization levy in the proposal for 2018 it does not mean it will get approved.” Because it is tax legislation, the 28 EU member nations will have to approve it unanimously.

“As we have seen, there are a number of member states that oppose it as a temporary measure—at least until the OECD adopts measures on digital taxation,” the EU diplomat said.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bloomberglaw.com

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

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