More and more consumers are making purchases through digital companies, and the European Union wants to capitalize on the future of commerce.
EU finance ministers are developing a new way to tax digital companies like Amazon and Facebook in a move they say brings in money from an industry that isn’t providing its fair share to the public. However, complicated international tax codes could make for a long road ahead.
New Tax Plan
Finance ministers in the EU are hoping to come to an agreement on a tax on revenue, instead of on profits, by mid 2018. The proposal, led by France, includes a temporary levy on revenue, although it could take years for a new policy to be implemented and money to be raised. The move is backed by 10 countries, including Italy, Germany, and Spain, who believe digital companies are avoiding traditional tax levies because the international tax on profits is too complicated. Up until this point, the value added by digital companies has been virtual instead of material, meaning the companies could work through loopholes. Those in favor of the new plan say it is just a matter of fairness to get digital companies to pay what they owe in taxes.
“We are responsible to our taxpayers to deal with it, we can’t just watch how bags of money are transferred elsewhere,” said Slovak Finance Minister Peter Kazimir. “I favor imposing immediate levies, similar to sales tax, but only as a temporary solution before we reach a global agreement.”
The issue has been brewing for quite some time. Last year, the European Commission ordered Apple to pay back €13 billion plus interest in back taxes after saying Dublin illegally cut the company’s obligations to entice it to move to Ireland. The decision is currently being debated between Apple and the Irish government. In July, Google won in a €1.12 billion French tax debate after a court rejected the claims that the company abused loopholes to avoid paying its fair taxes.
Difficult Journey Ahead
Even with 10 countries in agreement, the tax is anything but a sure fix. Eight EU countries, led by Ireland, have reservations about the proposal. A major concern is how such as large, global change would actually be implemented.
Danish Finance Minister Kristian Jensen warned that a new levy could discourage digital use and push customers to products outside of Europe, which would leave the bloc’s economy worse than it currently is.
“I’m always skeptical about new taxes, and I think that Europe is taxed heavily enough,” Jensen said, adding that the digital industry is “the future”.
Other finance ministers believe more countries need to get involved and serious thought needs to be given to the issue because it affects the entire global economy where digital companies operate.
“You need to know what the impact is and if it’s going to change a whole system of taxation,” said Maltese Finance Minister Edward Scicluna. “One has to look at it globally rather than partially, because it involves the U.S., it involves China.”
Some ministers are suggesting that the current plan under discussion act as only as temporary fix before sending the issue to the Organisation for Economic Cooperation and Development for a larger and more permanent solution.
One of the major difficulties in passing a new tax regulation is that all 28 members of the EU need to agree on tax initiatives, meaning one country could block the entire plan. The proposal will be discussed at the next meeting of the EU finance ministers in October, with plans to have a final proposal ready by December.
Although there is a long road ahead for a new digital tax plan, finance ministers on both sides seem optimistic. The EU could set a precedent for how these growing companies are taxed and how it effects the global economy.
Take The Next Step with Alvexo Leave your details and we’ll reach out shortly.