EU’s Finance Ministers draft plan to raise tax bills of online giants like Google and Amazon

Digital multinationals such as Amazon, Facebook and Google may face higher tax bills in the European Union as a new plan for harmonised tax treatment of online companies has been discussed by EU Finance Ministers on Saturday. French finance minister Bruno Le Maire led the initiative and claimed on Friday nearly one third of EU member states are ready to back a plan to tax digital multinationals on their turnover, rather than profits, in individual countries. The move is part of a growing debate against US tech giants, accused of routing most of their profits to lowest tax rates jurisdictions, but it is already raising scepticism and concerns by some member states.

Background

Earlier this month, France unveiled a plan to tax large digital corporations on their turnover, rather than on their profits. The plan openly wants to leverage the fact that many EU Member States would agree in principle to increase tax revenues from online giants such as Google or Facebook, which are accused of paying too little in Europe. Indeed, the proposal immediately gained Germany’s support, which was followed by other two EU Member States. France, Germany, Italy and Spain signed a joint letter addressed to the EU’s Presidency with the bloc’s executive Commission in copy, with a clear message. “We should no longer accept that these companies do business in Europe while paying minimal amounts of tax to our treasuries”, the four ministers wrote in a letter seen by Reuters.

The four EU countries then formally said they wanted to present the issue to other EU Member States at a euro zone and EU finance ministers, 15-16 Sept. meeting in Tallinn. EU commissioner for taxation, Pierre Moscovici, immediately made a strong statement upon his arrival on Friday in the Estonian capital Tallinn. “The digital economy should be taxed as the rest of the economy”, he said. Mr. Moscovici also reportedly said outside a meeting on Friday that “all options are on the table”, and that “the digital economy should be taxed” and tech giants must “pay their fair share”.

Tallinn meeting

So the topic was largely covered during Tallinn meetings, and France led the way with its Finance Minister Bruno Le Maire, as expected. Mr. Le Marie told reporters before entering the Tallinn sessions he was “confident” to receive the support “of many other Members States” at the end of the meetings on Saturday, “for the sake of the improvement of the tax framework all over Europe”. At the end of Saturday meeting Mr. Le Marie was the first to announce that a that a total of ten countries, a third of the bloc, “formally joined the initiative”. “We are now about 10 countries to back this idea,” said Mr. Le Maire, declaring that the initiative gained the support of Italy, Spain, Greece, Portugal, Bulgaria, Slovenia, Romania, Austria and Germany on top of his country.

Mixed reviews and scepticism

However, despite having gathered the support of about third of the 28 EU governments, the initiative has still a long way ahead to be adopted. Firstly, it would need to involve a change in the way companies are taxed in the EU. At the moment, businesses are taxed only in countries where they have a concrete presence, such as a plant, and the proposed reform would need to go at the core of this rule.

Secondly and, most importantly, the proposal would need the backing of all member states. Tax reforms in the EU need unanimity among EU states, which is something that has blocked many proposed changes in the past, and risks to put the “French plan” in jeopardy as well. Some Member States have already showing a certain level of scepticism. “We should be very careful,” Denmark’s Finance Minister Kristian Jensen said, warning of the risks of pushing innovative companies away from Europe, as reported by Reuters. Speaking on his arrival at a meeting of EU finance ministers in Estonia, which will focus on taxation of the digital economy, he reportedly said that he was “always sceptical of new taxes”.

Opposition risks

Opposition may also come from countries with lower taxes like Ireland and Luxembourg that may lose massive incomes. Luxembourg’s Finance Minister Pierre Gramegna indeed strongly echoed Danmark’s Jensen, and, despite saying that there was clearly an “issue with online giants’ taxation” in Europe, also said a tax on turnover would hit loss-making companies which are otherwise exempted from paying. He said any EU solution would need to be backed at global level to avoid affecting Europe’s competitiveness, Reuters quoted him as saying.

Support

Other Member States were more supportive though. Czech Republic and Malta only mentioned technical work, which – on a turnover tax – could potentially be “very complicated”. Estonia, which holds the EU’s rotating presidency, reportedly pushed an alternative plan to tax companies where they have a digital, and not only physical, presence in a country. Countries like Holland and Belgium backed the plan, saying that it was a “very good initiative” and that some technical work was anyway “necessary”.

Following last Saturday’s meeting, the Commission will prepare a document listing all possible legal options for moving forward, before a summit of EU leaders on Sept. 29 dedicated to digital issues. The Commission is expected to present up to six possible measures. According to the Financial Times, the French plan pushes for a turnover tax that could be set at somewhere between 2 percent and 5 percent of revenue of the online companies.