EU digital sales tax issue far from resolved following Ecofin meeting

Germany's finance minister, Olaf Scholz, had long conveyed reservations about the European Commission's proposed directive for a digital sales tax (DST), which would place a 3 per cent levy on online advertising, most of which goes to Google and Facebook, and on online sales such as for Amazon.

Scholz finally stated a clear position at the Ecofin meeting on Tuesday, when he proposed that the European Union wait for a report on digital taxation by the Organisation for Economic Co-operation and Development, which is due in the summer of 2020.

The commission, the Austrian presidency and France, which has led the drive for a DST, hope to pass the directive at the December Ecofin.

It is possible that Scholz's Monday-night dinner with the eight-member "Hanseatic League" – comprising the Nordic and Baltic EU members plus the Netherlands and Ireland – influenced him. In any case, the mood yesterday morning had swung in favour of the anti-directive camp.

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There was a catch, though. Scholz said that if there was not a broader international agreement on digital taxation, Germany would accept a European tax.

Implementation

That created the opening seized by the French finance minister Bruno Le Maire. If Ecofin would vote the DST directive next month, implementation could be suspended for two years, during which the EU rule might be rendered unnecessary by an OECD initiative.

France also promised to clear up misgivings on the part of Ireland and others regarding technical details of the tax.

The way the French tell it, there are only three remaining holdouts against the digital tax: Ireland, Denmark and Sweden. The Austrian presidency said 10 countries support the DST, which seems to imply that 18 others do not.

The Irish usually estimate the number of opponents at eight. In yesterday's debate, many took an ambiguous stand, the Dutch finance minister Wopke Hoekstra, for example.

“The digital economy is there whether we like it or not,” Hoekstra said. “We like it a lot . . . we are trying to achieve the right balance. We ultimately prefer a global solution through the OECD. We are also open to an interim solution. It is more viable to have something done by the EU than 28 different regimes.”

Fragmentation

The UK, Spain and Italy have announced they will establish national digital taxes. The need to avoid fragmentation of the EU is a strong argument for the French compromise.

Ireland tends to see the issue in economic terms, and is reluctant to raise tension with the US over trade. The French see it as a test of European power and volition, and relish confrontation with the digital giants.

The French also believe it is essential that Europe tax the internet companies to satisfy public opinion. That argument was expressed by the Greek finance minister Euclid Tsakalotos. "European citizens always have the impression that when there is a choice between competitiveness and fairness, competitiveness wins," he said.

France’s “nuclear option” would be to remind Germany of its previous commitments to an EU digital tax. If Germany caves, the French say, they are confident Ireland, Denmark and Sweden would follow. Ireland’s “nuclear option” would be to veto the directive. Both countries hope it won’t come to that.