Ireland has found itself in a delicate place on the issue of taxing big digital technology companies, as the EU discusses its options if a deal cannot be done with the US on tariffs. The Government is right that there are risks for the EU in the proposal from European Commission president Ursula von der Leyen that member states consider the option of taxing the digital advertising revenue of big US players. This dispute is already causing damaging cost and uncertainty in manufacturing and spreading this to the services sector should be avoided if possible.
It is important to understand the background here. The European Commission and some member states have long complained about the tax arrangements of the big US digital service companies. Because these companies do not have a physical presence in many countries into which they sell online, they generally pay little tax on the profits earned in these markets. Ireland, the home for the international headquarters of many of these companies, benefits by getting a big tax take, something long looked on jealously elsewhere.
Recognising Ireland’s vulnerability here, the previous government signed up to the OECD corporate tax deal. As part of this, some taxing rights were to be reallocated to countries where these companies had major online sales. Countries with big markets like Germany, France and Italy would gain, in other words, and Ireland would lose some tax revenue. Now, however, this part of the OECD deal has effectively collapsed. And so, rather than the issue being settled, Pandora’s box has been reopened.
The European Commission, not wanting to “waste a crisis” has again raised the issue of where these companies pay tax. Notably, as well as Ireland, there has also been German reservations about this, fearing that it would push up the cost of digital advertising for businesses. Already, the US objects to the digital services taxes introduced by some European countries.
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With Donald Trump’s tariff plan under significant pressure, it is not clear where negotiations will go. The US president is weakened by last week’s concession and by a decision late last Friday to spare many manufacturing tech companies from tariffs for now – allowing computer chips and mobile phones to escape the punishing taxes imposed on imports from China. Talks in Washington today between the EU and US may give some indication of the possibilities.
For Ireland, keeping the digital services companies out of the fight with Trump would be good news. But with the US objecting to EU regulatory action, as well as the digital service taxes in some European states, this may be easier said than done. And, whatever happens in the short term, the recent comments from the European Commission shows the issue of the taxation of these companies is far from settled.
