The digital services tax hasn’t gone away

It hasn’t gone away, you know. The European Commission’s proposal to impose a tax on the turnover of digital companies selling in the EU was not agreed by leaders at this week’s EU summit. But it will come back on the table at the June summit.

Even if it does not get the go ahead then, there are two things that look increasingly certain. One is that the tech players are going to be paying more tax. And the other is that there is going to be a bit of push and pull between the US and Europe over where it is paid, with risks that Ireland could lose out both in terms of revenue and in the package we sell to FDI investors.

It was clear for some time that Ireland was not alone in its opposition to the digital services tax proposal, put forward by the European Commission as an interim measure until longer-term proposals are agreed internationally.

However, as the cliché goes, timing is everything, and the emergence of trade tensions with the US seemed to harden opposition to the plan. In particular, Germany feared that it could give the US an excuse to retaliate against its car producers.

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In the event, President Trump named the EU as one of the exporters which would be temporarily spared the imposition of tariffs on steel and aluminium. If the EU can negotiate a permanent waiver – and attention turns instead to US/China tensions – then it remains to be seen if Germany might come back on board on the digital services tax.

Ireland might still get support from Luxembourg, the Netherlands and others, though it looks likely that French president Emmanuel Macron will try to push the idea again before June if he sees any chance at all of success.

The interim commission proposal has plenty of weaknesses. It is charged on revenue, not profits – at a proposed rate of 3 per cent – and aims at particular revenues sources. The US has accused the commission of targeting its companies, and the commission erred by including the names of some US players in leaked earlier drafts.

Even if the interim plan falls, however, it is clear now that reform is happening. This may affect our corporate tax revenues, and will almost certainly reduce the attraction for US firms to locate here for tax reasons.