Germans ‘Have to Be Concerned’ About EU Digital Tax, Official Says

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By Joe Kirwin

Germany’s doubts about the EU’s proposed tax on large internet companies continue to grow over concerns the levy would backfire and hit the country’s exports.

“We have to be concerned that this kind of tax being considered could be used by countries such as India and China to tax German exports—cars for example,” Lutz Lienenkamper, the finance minister of the Germany state North Rhine-Westphalia, said April 19 at a conference sponsored by the Confederation of Fiscal Advisers.

Germany’s concerns come in advance of April 27-28 meeting in Sofia, Bulgaria, when EU finance ministers will negotiate the terms of the digital tax proposal for the first time since it was proposed on March 21.

The digital services tax would apply a 3 percent levy on services such as the sale of digital advertising or user data on companies with global revenues of more than 750 million euros ($922 million). It is aimed at companies like Facebook Inc. and Alphabet Inc.'s Google.

Bloomberg Tax previously reported the German auto industry feared the impact of the tax. The industry includes Volkswagen AG, Daimler AG and Bayerische Motoren Werke AG (BMW) and employs about 800,000 people with an annual turnover of about 404 billion euros.

Lienenkamper represents the most populous region in Germany, which is home to companies like pharmaceutical giant Bayer AG. His doubts follow concerns raised by German business industry group BDI on April 16 that the pending digital tax could hit German exports.

‘Not Fair’

“It is my personal opinion that this tax proposal is discriminatory and not fair,” Aart Roelofsen, who serves in the Netherlands MInistry of Finance, told Bloomberg Tax after his presentation at the conference. “That is one of the reasons the Germans are backing away from it. They realize it could easily end up being used to tax their exports.

Roelofsen is also the co-chair of the Organization for Economic Cooperation and Development’s working party dealing with tax treaty issues.

“For example this kind of tax could by used by a country to impose digital features on a car,” Roelofsen said. “There are all kinds of possible areas where countries could go if this type of taxation is approved in the EU.”

The pending proposal could raise issues in the World Trade Organization and European Court of Justice, Philip Baker, a tax lawyer with the U.K.-based Field Court Tax Chambers and an Oxford University visiting professor, said on the panel.

The EU court has previously ruled there can be only one turnover tax, which is the value-added tax, he said.

“The tax proposal is clearly discriminatory,” Baker said. “There is also the issue of whether or not it is a turnover tax.”

Will it Survive?

European Commission tax expert Bert Zuijdendorp, who played a key role in designing the levy, insisted the temporary digital tax proposal would survive any WTO or ECJ challenge. Zuijdendorp also spoke on the panel.

Some EU member nations, led by Ireland, have criticized the proposal claiming it is targeted at large U.S. Multinationals.

The European Commission insists that between 120 and 150 companies qualify for the tax proposal and one third of those are from either the EU or Asia.

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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