A European Digital Retreat Leaders abandon France’s tax grab on U.S. tech firms and Ireland.
https://www.wsj.com/articles/a-european-digital-retreat-1541635377
As impressive as Emmanuel Macron’s reform successes have been, this week brings word of a failure by the French President that’s worth cheering. There are growing signs that the Europe-wide digital tax cherished by Paris is falling by the wayside.
Finance ministers from Ireland, Sweden and Denmark this week rebuffed the European Commission’s digital tax proposal, released earlier this year, and Berlin now appears to have reservations as well. All signs are that at least some of these governments will exercise their veto over the plan at the next finance ministers’ summit in December, or kick the plan into the long grass by delaying further action until 2021 or later.
Mr. Macron and Finance Minister Bruno Le Maire have aggressively advocated such a tax, which the Commission would set as a 3% charge on revenues (not profits), to be paid to the EU state where the revenue is earned rather than where a European subsidiary is headquartered. This is an attack on U.S. tech giants such as Facebook, Amazon and Google parent Alphabet, since few European companies would hit the thresholds of €750 million in annual global revenue and €50 million in EU revenue above which the tax kicks in.
The plan also is a policy assault on low-tax EU states such as Ireland, which has attracted the European headquarters of many global tech companies by imposing a 12.5% tax rate on corporate profits. Tax-happy EU members such as France and Germany have complained about this competition for decades, and Messrs. Macron and Le Maire may have thought that public irritation at American tech companies over privacy would provide political cover for another attack on Dublin.
But Dublin is stubbornly defending its fiscal sovereignty. Sweden is worried about the implications for its own tech economy, including music-streaming service Spotify. Other leaders are concerned about potential retaliation from President Trump. Berlin now says it would prefer to wait for the Organization for Economic Co-operation and Development’s plan for digital taxation—which may be a very long wait—despite Chancellor Angela Merkel signaling her support for the French plan earlier this year.
This isn’t the end of European attempts at novel digital taxes. Britain, Spain and Italy all have proposed or threatened to propose their own digital-revenue taxes. But as EU-wide economic growth is starting to falter, it’s a relief that finance ministers might spend more time discussing ways to boost European competitiveness than crafting a punitive tax regime.
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