Europe's Tech Tax Plan Limps on With Franco-German Agreement

(Bloomberg) -- Europe’s efforts to tax large tech companies were kept on life-support Tuesday as France and Germany proposed a final-hour compromise that scales back the broad plan initially envisioned by Paris.

The new proposal would only tax the European advertising revenue of digital companies at 3 percent, rather than a wider base encompassing data sales and marketplace sites. The duty would generate about half the revenue previously planned and mainly hit Alphabet Inc.’s Google and Facebook Inc., which dominate the online ad market, according to an official with knowledge of the matter.

“Like any European compromise, some will be disappointed. They’ll say it’s not enough and I can understand them,” France’s finance minister Bruno Le Maire said.

Europe's Tech Tax Plan Limps on With Franco-German Agreement

While the Franco-German deal marks a breakthrough after months of wrangling, it doesn’t guarantee that the tax will become law; several countries including Sweden and Ireland have indicated they’re unlikely to support the measure, which requires unanimous support to come into force as EU-wide legislation.

Finance ministers from reluctant countries didn’t give their backing to narrowed Franco-German plan at a meeting in Brussels, but said they wouldn’t stand in the way of further talks. “I promise to be constructive and I’m ready to look at the proposal, but I still have serious concerns with it,” said Finnish Finance Minister Petteri Orpo.

A draft of the new proposal will presented by the European Commission in the coming weeks and the EU will vote on the measure before the end of February, an EU diplomat said. France and Germany said that the watered-down proposal doesn’t prevent countries wishing to impose the levy on a broader revenue base to do so.

Macron’s Plans

“The Franco-German proposal offers a possible path and I think we should take it,” said Pierre Moscovici, the European Commission’s taxation chief.

The compromise is a blow to French President Emmanuel Macron’s broader plans to reform the euro area. France has held up the digital tax as an opportunity to show voters ahead of EU elections in May that establishment parties are capable of action to make global corporations contribute a fair share to public coffers.

In a bid to get a deal, France has repeatedly made concessions to try and get Germany on board with the plans. At a meeting a month ago, French Finance Minister Bruno Le Maire agreed to be more flexible on the implementation date of the European tax by having it as a fallback option if international efforts didn’t get results.

The latest Franco-German statement says the new levy would enter into force in January 2021, unless if rich nations at the Organization for Economic Co-Operation and Development reach consensus on a global approach by then. The levy will expire in 2025.

The narrower base France agreed responds to German concerns that other industrial companies could get caught in the net. Le Maire said it is is only a first step towards broader push to regulate and tax tech companies.

“The digital tech giants concentrate too much capital, too much data, and to be honest, too much power,” Le Maire said.

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