Sunday 16 December 2018

'Arbitrary and blunt' EU web tax plans under fire

Fine Gael MEP Brian Hayes
Fine Gael MEP Brian Hayes

Colm Kelpie

Brussels is racing to bring in new taxes opposed by Ireland because of political pressure from other member states, an internal European Commission paper states.

The proposal to impose a tax on the digital revenues of large tech giants operating in the EU, instead of on profits, has been branded "arbitrary" and "blunt" by experts here and a bad thing for Europe.

A draft internal Commission document, seen by the Irish Independent, proposes an interim targeted measure that could see a single rate of up to 5pc of sales levied annually.

This would be put in place while agreement on a more comprehensive tax plan for digital activity is achieved, the paper states.

Commission sources have said the document, which was prepared earlier this year, is not final, and the rate is subject to change.

But it nonetheless gives an insight into the thinking in Brussels towards a digital tax, which is opposed by a number of smaller countries, including Ireland.

The new levy would be payable based on where the revenue is generated, not booked, so small countries like Ireland will see little cash benefit.

The Government here prefers to push ahead with the current global overhaul of corporate tax rules spearheaded by the Organisation for Economic Co-operation and Development (OECD).

But the European Commission has argued that is taking time and that pressure is mounting from some member states - understood to include France and Germany - which the Commission fears will bring in their own tax if Brussels is seen to delay.

"(And) there is high political pressure for member states to adopt short term-measures with a more targeted scope which could somehow address the problem outlined," the draft paper states.

"In order to avoid the adoption of unilateral measures by member states and to preserve the single market, it is necessary for the Commission to act and to propose a harmonised approach on such a targeted solution," the draft Commission document states.

"We are nonetheless aware that such a short-term measure is sub-optimal and has a series of drawbacks and limitations. This is why it is foreseen as an interim measure."

A report prepared by Socialist MEP Paul Tang last year said EU states could have lost €5.4bn in tax revenues from Google and Facebook between 2013 and 2015.

The Commission document proposes a "targeted" tax levied on the gross revenues of a business resulting from the "exploitation of digital activities characterised by user value creation".

Firms selling online ads or providing advertising space on the internet, such as Google, Facebook, Twitter or Instagram, would be subject to the proposed tax.

The document says the tax should be applied to companies with revenues above €750m worldwide and with EU digital revenues of at least €10m a year.

It is proposing a tax of between 1pc and 5pc, although it is understood that this is likely to change before a final proposal is made.

The final proposal would also require unanimity, therefore Ireland would have a veto.

It states that the new tax could be deducted as a cost from the corporation tax base but would have to apply to national as well as multinational firms.

The paper said that if it didn't do this, the tax would be said to be "discriminatory towards foreign companies."

But Fine Gael MEP Brian Hayes argued the Commission's approach is a "clear political attempt to go after US multinational tech firms".

"The Commission wants to take unilateral decisions already before the OECD comes to a view on how the digital economy should be taxed," Mr Hayes said. "This is not in Ireland's interest. We do need solutions on how we should tax the digital economy but that should be done at global level through the OECD. Finding European solutions to global problems does us no good."

Cora O'Brien, policy director at the Irish Tax Institute, said the move wasn't good for Europe. "I don't think that having an arbitrary tax for a handful of companies that is on a gross basis and can't be credited and is basically just an additional cost, I don't think that's a good thing to do for Europe, never mind for Ireland," Ms O'Brien said.

Peter Vale, tax partner at Grant Thornton, said the move, if it got through, would dilute the benefits of Ireland's 12.5pc rate. "It is a very blunt way of dealing with it, and would be bad, and would clearly dilute the benefits to countries with a low corporate tax rate," he said.

"It could potentially be a significant cost as it's based on the gross number. It would be bad news for everybody really."

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