Tuesday 17 July 2018

US and OECD warn Brussels against plan for new digital tax

OECD tax chief Pascal Saint-Amans
OECD tax chief Pascal Saint-Amans
Donal O'Donovan

Donal O'Donovan

The OECD says a European Commission plan to impose a tax on technology firms could have "adverse consequences" and the US said the scheme would "inhibit growth and ultimately harm workers and consumers".

Ireland is understood to back key positions taken by the Organisation for Economic Cooperation and Development (OECD) yesterday, including that a consensus should be built before individual countries and blocs impose new levies on the digital sector.

A draft internal Commission document, seen by the Irish Independent, proposes a digital tax should be put in place while agreement on a more comprehensive tax plan for digital activity is achieved. The OECD, in an interim report for the world's most powerful leaders, yesterday warned against that kind of interim measure.

US President Donald Trump's administration came out even more strongly against the EU plan, which will disproportionately hit US technology firms.

"Imposing new and redundant tax burdens would inhibit growth and ultimately harm workers and consumers. I fully support international co-operation to address broader tax challenges arising from the modern economy and to put the international tax system on a more sustainable footing," Treasury Secretary Steven Mnuchin said in a statement.

The Irish position is closer to the US and the OECD than to ostensible allies in Brussels, Paris and Berlin. The tax row is set to further flare up next week.

European Economy Commissioner Pierre Moscovici is due to formally publish a proposal next week, under which all European Union member states would impose a turnover tax of around 3pc on the sales of digital giants like Facebook and Google.

Unlike corporation tax, which is charged on profits and paid where a business is headquartered, the digital turnover tax will be charged where customers buy products - so the lion's share will be collected by big countries like France and Germany. Big digital companies like Google, Amazon and Facebook will be most affected.

Facebook could be hit with a €240m bill for its €8bn of European sales, spread across the countries where it operates.

The resulting drop in profits would actually reduce corporate tax paid in the US and in Ireland where many tech giants have a non-US headquarters.

All told the Ireland's tax income could drop by hundreds of millions of euro.

OECD tax chief Pascal Saint-Amans said that countries are deeply split on the issue, and warned against states deepening the divide by going it alone.

"Countries are clearly divided," he said at the launch of the report yesterday.

The three main groupings are into those countries that want immediate action to raise more tax from digital activities including through short-term and interim measures; a group that sees no problem with the level of tax paid; and third, a cohort of states that wants to assess the impact of recent global tax moves and build consensus ahead of more radical actions.

The OECD team said it does not recommend the introduction of so called short-term measures, including what's expected to be proposed by Brussels.

Ireland is close to the OECD, and expected to oppose the plan along with Luxembourg, Cyprus and other small economies at a meeting next week of EU leaders including Taoiseach Leo Varadkar.

The Irish team is expected to flag the OECD report, as well as argue a need to assess the impact of Donald Trump's sweeping US tax changes, including whether more foreign income of US multinationals will now be repatriated, and taxed.

The OECD said yesterday that 110 countries have agreed to work towards forming a consensus on the issue by 2020, but that agreement is a long way off.

Irish Independent

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