The European Commission is ready to propose a tax on digital companies in light of the lack of international agreement among OECD countries on a solution to tax the digital economy.
In an October 19 interview with Politico Europe, EU Trade Commissioner Valdis Dombrovskis said the EU is “ready to come forward with a digital taxation proposal at the EU level, because we would like to avoid the fragmentation of the single market if different member states now start introducing different digital taxes.” While an OECD solution “remains our preferred option,” he noted that “the progress has been relatively slow."
The OECD released blueprints October 12 setting out the technical details of a two-pillar multilateral proposal for rebuilding corporate tax rules to address the challenges of the digital economy, aiming for agreement by mid-2021. The commission had said October 13 that it would hold off on unilateral plans to tax digital activity, even though the OECD missed its 2020 deadline.
In the absence of a multilateral, consensus-based solution, some countries have considered unilateral measures, such as digital services taxes. French Finance Minister Bruno Le Maire said October 14 that France’s DST would likely resume in mid-December after a nearly yearlong suspension to quell tensions with the United States.
Le Maire said OECD nations are unable to reach agreement on how to update the global tax system because the United States has blocked agreement on pillar 1, which calls for amending profit allocation and nexus rules to grant more taxing rights to market jurisdictions over a portion of in-scope multinationals’ residual profits.
After France reinstates its DST, Dombrovskis told Politico Europe that U.S. retaliation would be unacceptable. Since taxation is a country’s sovereign right, the EU will not accept interference from third countries — including the United States — over the taxation rights of member states, according to Dombrovskis.
France and the United States have been at the center of the political tensions for some time, after France implemented a 3 percent revenue-based DST that took retroactive effect January 1, 2019. The move riled the United States, which views DSTs as discriminatory against U.S. companies. France held off on collecting the DST until the end of 2020 to give room for OECD negotiations, but the Office of the U.S. Trade Representative said it would impose 25 percent tariffs on $1.3 billion worth of French goods in January 2021 after finding that the tax unfairly affected U.S. companies.
Aircraft Subsidies
Dombrovskis also told Politico Europe that he does not think Airbus needs to pay back EU loans, something the United States had requested in an effort to resolve the long-running trade conflict over aircraft manufacturing.
Aircraft manufacturers Airbus and Boeing accepted loans from the EU and United States, respectively, triggering a trade dispute over competition distortion that resulted in millions of dollars in tariffs from both sides. On October 16, Le Maire backed the EU’s right to impose nearly $4 billion in sanctions against the United States for its tariffs against the EU, following an October 13 WTO decision.
“What the U.S. seem to be suggesting is that there should be compliance obligations also for the past, and this is not in line with the principles [that] are followed by the WTO subsidy law, which follows the principle of prospective compliance, so therefore we see no basis of this request,” Dombrovskis said.
Representatives for the commission did not respond to a request for comment by press time.