EU halts work on digital levy to boost chance of global corporation tax deal

The European Commission announced on Monday that it has halted work on a proposed digital tax in a bid to increase the chances of reaching a global accord on corporation tax, expected to squeeze Irish revenues.

It followed the endorsement of a global minimum 15 per cent corporation tax rate by G20 finance ministers in Venice, and as US treasury secretary Janet Yellen visited Brussels to pressure the EU to shelve its digital levy.

"The G20 endorsed a historic agreement this weekend in Venice to create a more stable and fairer international tax system, which addresses the tax challenges arising from the digitalisation of the economy," a European Commission spokesman Dan Ferrie said.

“This was an extraordinary result after years of negotiations, and one for which the Commission has worked tirelessly.

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“Successfully concluding this process will require a final effort from all parties, and the Commission is committed to focusing on that effort. For this reason, we have decided to put on hold our work on a proposal for a digital levy as a new EU own resource during this period.”

Timetable

The G20 agreement consolidated an earlier accord reached by the G7 group of wealthy countries, and set a timetable for finalising reform plans through the OECD by October.

Dr Yellen meets Minister for Finance Paschal Donohoe as president of the Eurogroup on Monday, where she is expected to explain that an EU digital tax would make it more difficult for a global taxation agreement to pass through the US Congress.

She is set to meet European Commission President Ursula von der Leyen and European Central Bank chief Christine Lagarde, before joining the meeting of finance ministers.

"We will be reviewing the cooperation that is there between Europe and America and looking at how we can work together to build an even safer and more prosperous future," Mr Donohoe said ahead of the meeting.

The European Commission had initially been set to unveil plans for the digital tax this week. The measure was endorsed by EU leaders last year as a way to pay down its joint EU borrowing undertaken to fund a €750 billion Covid-19 stimulus fund.

Washington has long been wary of levies that it fears could be aimed at carving out a slice of tax revenues from its multinational tech giants. Brussels has stressed that the tax would be aimed more broadly at digital operations.

Ireland is among a handful of holdout countries including Hungary and Estonia resisting momentum towards an international deal on corporation tax, which Mr Donohoe has warned could cost the State as much as a fifth of its annual tax revenue from companies.

As the G20 signed off on the proposals this weekend, Dr Yellen said the US would try to address the concerns of hesitant countries but that a deal could go ahead regardless of some opposition.

“It’s not essential that every country be on board,” she said. “The world is ready to end the global race to the bottom on corporate taxation, and there’s broad consensus about how to do it – with a global minimum tax of at least 15 per cent.”