EU digs in on digital tax plan, after US quits talks

Natasha Lomas
Macro detail of euro currency money banknote: 20 euro (Photo: ilbusca/iStock)

The European Commission has reiterated its commitment to pushing ahead with a regional plan for taxing digital services after the U.S. quit talks aimed at finding agreement on reforming tax rules -- ramping up the prospects of a trade war.

Yesterday talks between the EU and the U.S. on a digital services tax broke down after U.S. treasury secretary, Steven Mnuchin, walked out -- saying they'd failed to make any progress, per Reuters.

The EU has been eyeing levying a tax of between 2% and 6% on the local revenues of platform giants.

Today the European Commission dug in in response to the U.S. move, with commissioner Paolo Gentiloni reiterating the need for "one digital tax" to adapt to what he dubbed "the reality of the new century" -- and calling for "understanding" in the global negotiation.

However he also repeated the Commission's warning that it will push ahead alone if necessary, saying that if the U.S.' decision to quit talks means achieving global consensus impossible it will put "a new European proposal on the table."

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Following the breakdown of talks, France also warned it will go ahead with a digital tax on tech giants this year -- reversing an earlier suspension that had been intended to grease the negotiations.

The New York Times reports French finance minister, Bruno Le Maire, describing the U.S. walk-out as "a provocation," and complaining about the country "systematically threatening" allies with sanctions.

The issue of "fair taxes" for platforms has been slow burning in Europe for years, with politicians grilling tech execs in public over how little they contribute to national coffers and even urging the public to boycott services like Amazon (with little success).

Updating the tax system to account for digital giants is also front and center for Ursula von der Leyen's Commission -- which is responding to the widespread regional public anger over how little tech giants pay in relation to the local revenue they generate.

European Commission president von der Leyen, who took up her mandate at the back end of last year, has said "urgent" reform of the tax system is needed -- warning at the start of 2020 that the European Union would be prepared to go it alone on "a fair digital tax" if no global accord was reached by the end of this year.

At the same time, a number of European countries have been pushing ahead with their own proposals to tax big tech -- including the U.K., which started levying a 2% digital services tax on local revenue in April; and France, which has set out a plan to tax tech giants 3% of their local revenues.

This gives the Commission another clear reason to act, given its raison d'être is to reduce fragmentation of the EU's Single Market.

Although it faces internal challenges on achieving agreement across Member States, given some smaller economies have used low national corporate tax rates to attract inward investment, including from tech giants.

The U.S., meanwhile, has not been sitting on its hands as European governments move ahead to set their own platform taxes. The Trump administration has been throwing its weight around -- arguing U.S. companies are being unfairly targeted by the taxes and warning that it could retaliate with up to 100% tariffs on countries that go ahead (though it has yet to do so).

On the digital tax reform issue the U.S. has said it wants a multilateral agreement via the OECD on a global minimum. And a petite entente cordiale was reached between France and the U.S. last summer, when president Emmanuel Macron agreed the French tech tax would be scraped once the OECD came up with a global fix.

However, with Trump's negotiators pulling out of international tax talks with the EU, the prospect of a global understanding on a very divisive issue looks further away than ever.

Though the U.K. said today it remains committed to a global solution, per Reuters, which quotes a treasury spokesman.

Earlier this month the U.S. also launched a formal investigation into new or proposed digital taxes in the EU, including the U.K.'s levy and the EU's proposal, and plans set out by a number of other EU countries, claiming they "unfairly target" U.S. tech companies -- lining up a pipeline of fresh attacks on reform plans.