EU Pushes for Taxes on Digital Economy

The European Commission aims to develop better taxation rules on the digital economy, potentially targeting American market leaders

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There should be progress on global rules for the taxation of the digital economy, according to European finance leaders at a meeting of G20 finance ministers and central bankers in Argentina on Sunday, potentially pitting them against US counterparts.

The final communiqué confirmed a commitment to addressing the effects of the switch to digital economy on the international tax system by 2020.  The officials didn’t give further details.

The European Commission, which serves as the executive arm of the European Union, put forward rules earlier this year that will require digital companies to pay higher taxes, with US tech giants like Alphabet’s Google, Facebook, and Amazon expected to pay the larger slice of any bill.

According to officials, around 200 companies would be under the scope of the proposed tax bill.   Estimates show additional annual revenue of around 5 billion euros, or $6 billion.

European Commissioner for Economic and Financial Affairs Pierre Moscovici stated that the major digital companies had “to pay their fair share of tax, because basically what we are talking about here is fairness.”

Moscovici said that he wanted a turnover tax to be implemented before the end of 2018 as an interim solution.

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On the flip side, some EU members raised concerns that they can expect retaliatory responses from their companies and international partners that will be affected by the proposed tax. 

“One of the big challenges is that taxation of the digital economy is mostly of course a taxation of American companies – because they are the key players in the world – so the United States feel that this is an attack concerning their digital economy, which it isn’t really,” said European Council representative to the G20 Hubert Fuchs on the sidelines of the meeting.

US Treasury Secretary Steven Mnuchin stated in a statement earlier this year that he “firmly opposes proposals by any country to single out digital companies,” stressing the fact that those companies were key contributors to the US economy.

Meanwhile,  Australia Treasurer Scott Morrison claimed that the G20 discussions helped with the issue since the officials pointed out the root of the problem, which is that “no one knows” how to correctly gauge for tax purposes the real value of the data users of social media services create outside of the countries where those companies are located.

He stated that if no resolution is proposed at this period, more countries would start taking “interim measures.”

“We’re not convinced at this point about the efficacy of those interim measures – which is basically a sales tax on digital advertising,” said Morrison.  “It is more important to focus on those technical issues rather than the pot-of-gold approach, which is how much revenue can be raised.”

According to the officials, the commission aims for a long-term, global solution based on a new method of calculating tax rates.  However, it has pushed for the revenue tax to recoup revenues lost by EU states to large digital firms.

Further, the possible implementation of “fair taxation of digital giants” would be a way to prove “that Europe is united and strong” amid the pressure coming from the administration of US President Donald Trump, according to a senior European official on the sidelines of the G20 meeting.

“We cannot accept that our SMEs (small and medium enterprises) have a level of taxation 40 points higher than the level of taxation of internet giants,” said the official. 

“Taxation should be where the moneymaking is and if the digital economy is making the money all over the world it doesn’t really make sense if they only will declare their income in the United States,” stated Fuchs, who also serves as Austria’s state Secretary for  finance. 

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