Digital tax plan faces resistance at EU summit

Leo Varadkar to say timing of tax initiative is ‘poor’ given US-EU trade tensions

New European Commission proposals to tax giant digital companies are expected to get a rough ride when EU leaders debate the issue at their summit here on Thursday evening.

The proposals to allow tax authorities to levy companies which have only a "virtual" presence in their state, and to charge 3 per cent on turnover of certain online services, have been denounced as "ill-judged" by Taoiseach Leo Varadkar. And he will on Thursday, during their debate over dinner, call on fellow leaders to reject the measures in favour of action at international level through the OECD.

The current trade dispute with the Trump administration over steel makes the timing of the initiative particularly poor, he is expected to warn, particularly given the perceptions in Washington that the measures are targeted at US tech businesses.

It was a point Irish commissioner Phil Hogan is understood to have echoed at yesterday's commission meeting where the package put forward by economic affairs commissioner Pierre Moscovici was endorsed.

Crying out for action

The latter insisted to journalists that “this is neither a GAFA (Google, Apple, Facebook and Amazon) tax nor an anti-US tax proposal that will target any company or any country”. He said citizens were crying out for action to tax the big digital companies which paid, on average, half the rate of tax of traditional businesses.

“The digital economy is a major opportunity for Europe,” Mr Moscovici said. “And Europe is a huge source of revenues for digital firms . . . Our pre-internet rules do not allow our member states to tax digital companies operating in Europe when they have little or no physical presence here. This represents an ever-bigger black hole for member states, because the tax base is being eroded.”

The Taoiseach is expected to get support from German chancellor Angela Merkel, who is understood to be particularly fearful of escalating a trade war. A German official in Berlin on Wednesday told The Irish Times that given the trade stand-off with Washington, and how the most likely targets of a digital tax would be US tech giants, the tax proposal "is not going to simplify things".

Digital taxation

Although the UK strongly supports the principle of digital company taxation, and prime minister Theresa May is likely to insist it is a leader in the field of digital taxation, London shares reservations about the timing of the proposals. An emphasis is likely to be placed by her on the need for a multilateral approach to taxation to emphasise that there is no connection with trade issues.

Ireland is also likely to be backed by Luxembourg and other opponents of tax harmonisation: Belgium, Cyprus, Hungary, Malta and the Netherlands. The commission's strongest backer is France's president Emmanuel Macron. No decision is expected today.

The summit will also approve guidelines for the next phase of Brexit talks, make a strong declaration of support for the UK over the Salisbury nerve agent attack, and debate the trade crisis with the US.