US tax overhaul may ‘slow momentum’ for EU digital tax

US moves to clamp down on multinational tax avoidance may slow "the momentum" for a digital tax in Europe, according to the Revenue Commissioners.

In a briefing document to Government, released under the Freedom of Information Act, the Revenue noted that US plans for a 20 per cent “excise tax” on the movement of profits and goods to foreign entities would impact the same firms targeted by an EU-wide digital tax.

“The proposed EU ‘quick fix’ solutions such as a digital equalisation levy could be perceived as lending support to the US proposals in this area, in that they both could be considered to be a type of border import tax,” it said.

"This proposal may, however, slow down the momentum of discussions around corporate taxation of the digital economy at EU level," the Revenue said, noting big export countries such as Germany may worry about the long-term implications of such taxes on its economy.

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The Revenue's briefing document delivers a stark assessment of the potential impact of an EU digital tax on Ireland, warning it would lead to a significant fall-off in corporation tax and payroll tax receipts as well as negatively impacting the State's ability to attract future inward investment.

Corporation tax receipts

“Ultimately, any changes to how digital businesses are taxed are likely to negatively impact Ireland’s corporation tax receipts as the changes would likely see greater taxing rights in larger countries,” it said.

While noting the impact of the proposed changes were difficult to assess at this stage given the uncertainty about what short-term measure would be adopted, “it is likely that Ireland would be the worst-hit euro zone state”, the Revenue suggested.

"This is because of the particular focus on US multinationals and the significant concentration of such MNCs [multinational corporations] in the Irish economy and the fact that the proposed changes to the taxation of corporation profits favours EU states such as France and Germany with large home markets over smaller exporting ones such as Ireland."

US tech companies operating here, such as Google, Apple and Facebook, pay very low rates of tax on their profits even though much of the revenue was drummed up elsewhere in the EU.

In its briefing document, Revenue gives an example of how streaming video service Netflix could be taxed in France "on the revenue generated from subscriptions it has in France" under an EU digital tax.