EU Plan to Raise Taxes for Global Internet Firms Hits Snag

A European Union plan to raise more tax from digital multinationals faced the first signs of scepticism on Saturday, as smaller members of the bloc warned about the economic impact from such a move.

France wants to tax companies like Google and Facebook on their turnover, rather than profits, to increase revenue from global online groups, accused of paying too little in Europe.

More than a third of the EU's 28 members backed Paris on Saturday at a meeting of EU finance ministers in Tallinn, the Estonian capital, but the move needs the agreement of all member states to reduce the risk of legal challenges.

"We should be very careful," Denmark's finance minister Kristian Jensen said, warning of the risks of pushing innovative companies away from Europe.

His remarks were echoed by Luxembourg's finance minister Pierre Gramegna, who said any EU solution would need global backing to avoid damaging Europe's competitiveness. "It does not make any sense" for Europe to move without a global agreement, he said.

The Czech Republic and Malta said a turnover tax would betechnically difficult to implement.

If the divisions persist, a minimum number of ten EU states may apply the tax on their own under a procedure known as enhanced cooperation. Countries can also charge the tax unilaterally.

"Enhanced cooperation is certainly a legally possible option," Valdis Dombrovskis, vice president of the European Commission, told a news conference at the end of the ministerial meeting.

But the objective at this stage is to reach an agreement among all members by the end of the year, followed by legislative proposals next spring, he added. The commission will outline other legal options to tax the digital economy in a paper in the coming days.

Quick fix
French Finance Minister Bruno Le Maire said the turnover tax was necessary to allow EU countries to move quickly. "Otherwise we risk a breakdown with citizens across Europe," he added.

Ten states signed a statement in support of this approach on Saturday. In addition to France, they are Germany, Italy, Spain, Austria, Bulgaria, Greece, Romania, Slovenia and Portugal. Belgium and the Netherlands publicly backed the initiative. Others did so in private meetings.

The French plan was seen as a "quick fix" to address the issue, but European officials acknowledged it may have some drawbacks. It could be easily exposed to legal challenges, divide the EU and cause trouble with the United States, home to most major online companies, they said.

Estonia, which holds the EU's rotating presidency, proposed a more structural solution that would permit states to tax companies where they have a digital, not just physical, presence.

The two plans could be complementary and be part of a two-step approach, the Estonian undersecretary for tax, Dmitri Jegorov, said.

© Thomson Reuters 2017