Sunday 16 December 2018

Europe's digital tax proposals look like a tax grab by the bigger states

EU's bid to make the big technology giants pay more tax under new proposals could backfire, warns Brian Hayes

HANDS OFF: Many hi-tech firms maintain regional corporate
HQs in Ireland, so an EU digital tax is very much our concern. Photo: © 2010 Bloomberg Finance LP
HANDS OFF: Many hi-tech firms maintain regional corporate HQs in Ireland, so an EU digital tax is very much our concern. Photo: © 2010 Bloomberg Finance LP

Brian Hayes

There can be no doubt that when it comes to corporate tax and Brussels, the default response from Ireland is, more often than not, 'hands off'. But when it comes to the new digital tax proposal, published last Wednesday by the European Commission, we need to box clever.

The way that European Commissioner for Taxation Pierre Moscovici has run with this initiative has been a botched job, to say the least. It has been more about personal political gain than substance.

However, a digital tax - if designed right and done at a global level - is something Ireland can fully get behind. I think that there is a genuine effort in some parts of the commission to get this right and we need to recognise that.

As Garret FitzGerald reminded me some years back, the European Commission is not only the defender of the community method, but has over the years done much to help smaller member states. Traditionally, the commission has stood up to bigger countries and has demanded fair play for all, both big and small.

They have a hard job to do in this Brexit-dominated landscape, where populism is in the ascendency and trust in EU institutions limited. They have to come forward with ideas that help to move the EU forward. I recognise fully the difficult task they face and the limitations on what can be done at EU level where there is such diversity of opinion.

But what is not needed in Europe right now are policies that pit the EU against the rest of the world and seriously make the EU anti-competitive and anti-investment.

Commissioner Moscovici's so-called 'interim measure' on digital tax has all the hallmarks of the proverbial dog's dinner. Moving ahead of the Organisation for Economic Co-operation and Development (OECD) on this issue creates the idea of an EU that appears to be unwilling to work at an international level to tackle the tax problem taxing the digital economy.

We need to design a tax system internationally that takes account of the modern digitalised economy. The effective rate of tax for the biggest of the digitals is too low. They need to pay up more, but it has to be done and calculated in a way that makes sense.

We have done it for more conventional business. The OECD base erosion and profit shifting process (BEPS) is working and in Ireland's case has helped to double the tax take from corporates - from €4bn to €8bn in four years.

I genuinely fear that the EU's solo run on digital tax is a tax grab, pure and simple.

While Moscovici said the new tax will bring in €5bn in tax, he hasn't said if this is additional to current revenues - or whether it is simply a transfer of revenue from smaller member states to bigger member states.

I fear it is the latter as the very idea of a turnover tax deliberately benefits bigger countries because that is where the bigger populations are using Facebook, Google or Airbnb. This is a tax that depends on the amount of users availing of a digital service, even though those users don't pay for anything when they use Google or Facebook.

The proposal applies a 3pc levy for the biggest of digital corporates, most of whom are US businesses, many based in Ireland. I'm very concerned that this move will be seen as anti-American. Do we really want to give excuses to the current US administration to up the trade barriers and start some trade war? The current EU-US relationship is bad enough without fuelling it.

What I resent is the attempt to simply raid our taxes under the guise of "tax justice". This has nothing to do with justice but everything to do with tax transfers from small member states and sending a message to the US. This is an international problem, as digital services are provided on a global basis and that's where the issue should be fixed.

Were we to lose €1bn or €2bn, who would make up the difference? We would see reduced public services or an increase in other forms of tax. The last thing that Ireland needs now is tax uncertainty. There is a lot at stake for countries who depend on foreign direct investment and a thriving export economy.

For the moment, the interim measure is on the table for all EU leaders to discuss. There is a necessity for us to stay engaged and to remain at the table to see if the interim measure can work for us.

What we cannot accept is the EU going it alone. Placing itself outside of the global consensus is a deliberate act of international tax folly. Thankfully, all taxation measures require unanimity. It is time now to build a coalition of countries who want a sensible approach on digital tax and won't be taken along by a large member state agenda.

Brian Hayes is a Fine Gael MEP for Dublin and a member of the ECON Committee

Sunday Independent

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