France, Germany Aim to Keep Digital Tax Alive

France and Germany sought on Tuesday to salvage a proposed EU tax on big digital firms including Google and Facebook by narrowing the focus to cover only companies' online advertising revenue.

Eager to break months of deadlock, the two countries' finance ministers put a new proposal to their EU counterparts at a meeting on the issue in Brussels.

In March, the European Union's executive arm proposed a 3 percent tax on big digital firms' online revenues, accusing them of funnelling profits through member states with the lowest tax rates to keep their overall tax down.

While France has pushed hard for the digital levy, countries such as Ireland, Denmark, Sweden, and Finland have opposed it while Germany has also had misgivings.

The new Franco-German proposal would still impose a 3 percent levy, but not cover data sales and online marketplaces since it would be focused on advertising revenues.

That means companies with big online advertising operations like Google and Facebook would be the most affected as they make the majority of the market in Europe.

A broader turnover tax on firms with significant digital revenues in Europe would have hit companies such as Apple and Amazon harder.

"It's a first step in the right direction which in the coming months should make the taxation of digital giants a possibility," French Finance Minister Bruno Le Maire said as he arrived for the meeting.

"Will it put all arguments to rest?, certainly not," he added.

Le Maire said that if the tax were adopted, individual countries like France would be free to impose it on a wider basis.

In the original European Commission proposal, the tax was intended to be a temporary "quick fix" until a broader solution could be found among OECD members.

Under the Franco-German proposal, the tax would not come into force until January, 2021 and only if no broader international solution has been found.

The tax requires the support of all 28 EU states, including small, low-tax countries like Ireland which have benefited by allowing multinationals to book profits there on digital sales to customers elsewhere in the European Union.

The European Union's current Austrian presidency has been trying to reach a deal on the tax by the end of the year. The Franco-German proposal calls for a deal by March.

The setback is a painful blow to French President Emmanuel Macron, as his government had invested considerable political capital in the tax. It is also seen in Paris as a useful example of joint European action before EU parliament elections next year.

© Thomson Reuters 2018