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By Joe Kirwin
A leading trade group has warned that European Union plans to tax digital companies, such as Facebook Inc. or Amazon.com Inc., risk disrupting the global tax system.
Confederation Fiscale Europeenne (CFE) which represents 200,000 tax practitioners across Europe, said in a Sept. 28 statement to Bloomberg BNA that the EU’s plans “would bring many uncertainties and disruptions to the international tax system.”
The EU’s plans pose “a serious threat to global trade and economic supplies” if the trading bloc does not stick to a coordinated approach to digital taxation, it added.
The CFE’s warning comes on the eve of the EU’s special digital summit. Held in the Estonian capital of Tallinn, the Sept. 29 summit will bring together the heads of EU member states and focus on topics including the future of the digital economy.
Led by France, Germany, Italy and Spain, EU countires are pushing for a turnover tax as a short-term solution to force large internet companies to pay more in tax.
The four countries outlined their position in a paper submitted for the EU’s summit.
“For companies that shift to third countries their taxable profits earned in the internal market, to repatriate to the EU the portion of tax base that is unduly transferred offshore, the EU could explore options for a digital equalization levy,” the joint paper said.
In addition, the four countries insist that if the EU moves ahead and adopts its own solution on digital taxation it will accelerate an agreement at the global level, such as in the Group of Twenty or at the Organization for Economic Cooperation and Development.
However, other EU member states, led by Ireland, Luxembourg and Cyprus, are resisting any commitment to a turnover tax as a short-term solution. Instead, they want the EU to work with the OECD to conclude its work on re-writing global tax policy for multinational companies before the EU adopts any legislation on digital taxation.
Another EU option under consideration involves a “virtual” permanent establishment law, designed to impose taxes on companies like Facebook or Google that do not have physical presence in a member state.
However, while CFE said this approach would be a simpler “quick fix” compared to an equalization tax, the trade group also raises concerns because it would be difficult to distinguish between traditional companies and digital firms.
Estonia, which holds the rotating EU presidency and therefore is hosting the Sept. 29 summit, has been pushing for a virtual permanent establishment amendment to the pending EU Common Corporate Tax Base legislation.
Estonian presidency spokesman Juri Laas told Bloomberg BNA on Sept. 28 he did not expect issues such as the equalization tax or the virtual permanent establishment approach to be endorsed in a declaration to be issued after the summit.
“The presidency will issue a declaration summarizing the discussions,” Laas told Bloomberg BNA in a telephone interview. “There will be some general references to the digital taxation issue but nothing specific.”
Laas added, however, that the Estonian presidency expects French President Emmanuel Macron to speak out forcefully for the EU to take the lead on digital taxation and consider measures such as the equalization tax.
The new French president insists that imposing new taxes on large internet companies is a key plank in his government’s plan to reform the French economy.
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