Global Tech Tax Blueprint Could Be Accelerated to Break Deadlock

• April 28 2018
• Viktoria Dendrinou, Piotr Skolimowski

A global technology-tax proposal being developed by the Organization for Economic Cooperation and Development may be brought forward to try and overcome a deadlock in Europe.

A global technology-tax proposal being developed by the Organization for Economic Cooperation and Development may be brought forward to try and overcome a deadlock in Europe.

“We are supposed to come up with a blueprint of 2020; we are considering now a possibility of advancing it to 2019 so we can reduce the need for countries that they have to take short-term decisions,” OECD Secretary General Jose Angel Gurria said at a meeting of European Union finance ministers on Saturday in Sofia, Bulgaria. “We are going to come up with a blueprint for digital taxation, we are working on that.”

The European Commission, the EU’s executive arm, presented a proposal in March for a targeted 3 percent levy on sales, which would increase the tax bill large technology companies face. That would be an interim solution for the commission, which also put forward a more comprehensive longer-term approach to enable countries to tax profits made in their territory even if the firm doesn’t have a physical presence there.

The plan would cover large companies offering services such as advertising or the sale of user data. It would also cover multisided platforms, which let users find and interact with each other and where users supply goods and services directly to each other.

Tech Trouble

The proposal followed calls by several countries led by France and Germany to look into methods to tax the firms, including Amazon.com Inc. and Facebook Inc., in a way that better captures the true value created in the region.

The OECD, which advises its 35 member countries on tax policy, is part of a push to address the struggle traditional taxation has in dealing with an industry where value added tends to be virtual rather than material. The use of tax loopholes feeds into growing public discontent over technology firms, which are also grappling with the fallout from a data-security scandal that has raised the risk of a regulatory crackdown and sent their stocks plunging.

“Our citizens really expect us to ask those companies which are precious for our economies to pay their fair share of tax where they create value and profit," Pierre Moscovici, the EU commissioner responsible for taxation, said on his way into the meeting. "We also know that the fact that we don’t tax them properly creates huge revenue loses for our treasuries, and we need to fill that gap."

U.S. Concern

Still, while national governments accept that the current taxation system needs to be altered, the path forward is fraught with difficulties. Some have warned that a new levy could discourage digital use and push customers to products outside Europe. Any tax proposal will need the unanimous approval of all EU members before becoming law, meaning a single country could block it.

Some countries have raised concerns that such a tax could further strain transatlantic ties, worsening spats between the EU and the U.S. that already range from trade protectionism to Iran’s nuclear accord and climate policy. The proposed levy has drawn the ire of U.S. companies, which have warned that it could harm global business. The U.S. Treasury has opposed proposals that single out digital companies.

Speaking on his way into the ministers’ meeting, Slovak Finance Minister Peter Kazimir raised doubts about the prospect of the bloc agreeing on the digital tax in he near term.

"On the European level, I doubt that it’s going to be soon because you know on tax issues to have consensus it’s not going to be the easiest," he said.

Governments including Luxembourg and Ireland have voiced concerns about the likely implications of the bloc applying such a levy at EU-level, arguing that discussions and decisions on this issue should be tackled globally.

“The better we deal with medium to long-term solutions the more ownership there is,” the OECD’s Gurria said. “That includes the Americans and the Japanese, the Chinese and everybody else in the world including the Europeans -- then the better off the world will be.”

— With assistance by Nikos Chrysoloras, and Alexander Weber