During the EU Finance Ministers’ meeting held in Estonia this past weekend, Europe’s finance chiefs moved on with their plan to impose a revenue or equalization tax on American tech giants operating in the region.
Ten countries are now on board with this initiative and several others are expected to join the fray with a concrete proposal to be drafted and issued by December 2017.
Led by France and Germany, Italy, Spain, Austria, Bulgaria, Greece, Romania, Slovenia and Portugal signed the statement of support, while Belgium and the Netherlands publicly backed it, albeit sans a signature.
France’s finance minister Bruno Le Maire said, “We are now about 10 countries to back this idea,” adding that they “don’t want a Europe at the heel of others.”
Still, as reported by Deutsche Welle, “Europe-wide tax reform requires the unanimity of all 28 states, which in the past has proven nearly impossible on tax issues.”
Several EU Members Doubt Need for a Revenue Tax
Despite the aforementioned gain in momentum, several jurisdictions were hesitant to back the move and argued that such sort of levy might lead US multinationals to transfer their operations to outside of Europe.
Low tax jurisdictions like Malta, Cyprus and Ireland opposed this move, while others including the Czech Republic, Denmark, Luxembourg and Sweden conveyed their skepticism vis-à-vis the proposed revenue tax.
According to Deutsche Welle, some of these jurisdictions “would rather see Silicon Valley's mega profits and low tax bills addressed on the international level, such as through the G20 or OECD (Organization for Economic Cooperation and Development), a group of rich nations.”
Sweden and Luxembourg, for instance, believe that imposing a revenue tax in Europe might lead technology multinationals to move their offices to jurisdictions in Asia that have more favorable tax regimes.
Denmark’s finance head Kristian Jensen remarked, “I think we should be very careful not to tax on what we are going to live on in the future…I am… always sceptical by new taxes and I think Europe taxes heavily enough.”
Spain’s finance minister Luis de Guindos concurred, stating, “We should see what the United States thinks because a lot of these companies are US based.”
Furthermore, Luxembourg’s Pierre Gramega said, “It’s not clear that it will at all work…The idea is that you tax the profit. We’ve been doing that for hundreds of years … If you’re going to walk away from that, then you have to think hard about it and do it all together [on a global level].”
EU President Estonia Does Not Back Revenue Tax
Estonia, the EU member with the most advanced digital economy and host of Saturday’s meeting, failed to back the move, hoping a solution would seek to tax companies based on their digital presence instead of solely on their physical one.
Estonian finance minister Toomas Toniste said, “For us, it is important to agree on new international tax rules that also take into account the business models of the digital economy. This would guarantee the equal taxation of all companies regardless of their location or place of activity.”
“Future customs union IT systems development require a change of policy in order to gain efficiency and cut costs for member states and trade, although the best method has yet to be decided. More discussions on the expert level are needed to achieve an agreement on how to go further. There is strong support for a pilot project and it could prove that the centralised approach to the IT works for the customs union,” Toniste added.
Furthermore, Dmitri Jegorov, Estonia’s state secretary for financial affairs, explained that his biggest fear is for each jurisdiction to act unilaterally and make it very difficult for digital businesses to operate in the region.
“If you have 28 unilateral solutions, that’s even worse than applying 28 different corporate tax systems, because they will be all new solutions, and Europe will be a horrible place to do digital business if that happens,” he said.
Any thoughts on the viability of a revenue tax in Europe?