State still against EU digital sales tax while Germans seek delay

Ireland remains opposed to a digital sales tax for the European Union while Germany wants to delay a decision until a new report by the Organisation for Economic Co-operation and Development is delivered in the summer of 2020.

Minister for Finance Paschal Donohoe firmly expressed Ireland's opposition to the directive, which has been proposed by the EU Commission and is strongly supported by the Austrian presidency and France.

“This is a proposal I am not in a position to support,” Mr Donohoe said. He particularly feared creating a precedent where tax would be levied at the point of consumption. “That would hurt small, open economies. We are net exporters,” he said.

Germany’s finance minister Olaf Scholz said it wants to wait for the OECD report. “We commit to transposing that [OECD report] into EU law as soon as it is ready,” he said.

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Stance

The German position, that the EU should wait for an OECD decision on digital tax, is virtually identical to Ireland’s stance.

Under a compromise proposed on Tuesday by the French finance minister Bruno Le Maire, the EU would formally adopt the digital sales tax directive at its December meeting, but the directive would not take effect for two years. It would only then take effect if agreement and implementation of an OECD initiative was not achieved by then.

The French also promised to address technical concerns about how the directive is implemented. “Technical difficulties must not be a pretext for an absence of political will,” said a high-ranking French official.

French and Irish officials do not agree on the number of countries who still oppose the digital sales tax directive. A French official said that while Germany is not yet ready to support the directive, only Ireland, Denmark and Sweden remain firmly opposed.

Mr Donohoe said the directive could result in double taxation. The French official said the digital levy would be deducted from corporation tax. He also said that other sectors such as automobiles and chemicals would not be affected.

Sweden and Denmark reject the tax on “political and ideological grounds”, the official added, whereas Ireland’s opposition was “practical and technical”.

“If today Germany says Yes to the directive, it will be adopted in the hour that follows,” the French source continued. “I think Ireland has understood there will be a digital tax, and they will follow the movement. Paschal Donohoe talks to the internet giants. They have understood it’s not a major obstacle and it’s not a huge tax.”

Support

Asked whether Ireland could support the French compromise, Mr Donohoe said: “We have many other countries who have articulated similar concerns today in relation to the proposal from the commission . . . We will engage with the commission on this proposal. We know the way in which we tax the digital economy and the way in which large companies are taxed will need to change over time.”

Germany has twice committed to a directive on digital tax, the high-ranking French source said in a letter signed by the former finance minister Wolfgang Schauble, and in the Mesenburg declaration last June. If necessary, France will demand that Mr Scholz respect Germany’s commitments.

The debate over the digital sales tax has deepened French disquiet over political discord in Germany, and the fact that Angela Merkel’s CDU is growing at the same time more economically liberal and more conservative. “Before, the Germans were strong and the French were weak. That situation has been reversed. I am worried about the Germans’ incapacity to decide. Angela Merkel and Olaf Scholz are saying to us, ‘I want to, but I can’t’.”

The Austrian finance minister Hartwig Löger remains confident that Ecofin will approve the tax next month. He said the technical and political doubts raised by some finance ministers should be alleviated by a “sunset clause” that would make the directive temporary until the OECD reached a global solution.