EU Gives Up on Tech Tax Plans as Countries Vow to Go It Alone

(Bloomberg) -- Europe’s efforts to tax large tech companies were dealt a final blow Tuesday as finance ministers failed to agree on a compromise proposal that would scale back the broad plan initially envisioned by the European Commission and Paris.

After nearly two years of discussions over how best to raise money from an industry that they agree provides less than it should to public coffers, European Union finance chiefs couldn’t unanimously support the most recent proposal to tax the EU advertising revenue of digital companies, amid diverging national interests and perceived risks of such a proposal.

Instead, focus will now shift to reaching a deal at global level, through work at the Organization for Economic Cooperation and Development.

“We did not find an agreement on the digital advertising tax, which is for France a missed opportunity," French Finance Minister Bruno Le Maire said after the meeting with his EU counterparts in Brussels. “We have to move on at the OECD level and France will pursue with full determination its willingness of having a new international taxation system which would be fairer and more efficient."

Persistent Resistance

Despite repeated attempts, the EU has been unable to reach agreement on a proposed 3 percent levy on the European sales of tech companies, amid persistent resistance from countries including Sweden and Ireland. Even the watered-down version of the tax has struggled to garner support, as governments mull how to strike a balance between luring business and addressing popular discontent about companies not paying their fair share.

Traditional tax systems have so far failed to capture revenue from companies with global reach but limited physical presence, fueling anger from voters disgruntled after years of austerity and meager wage growth. But tax policies require unanimous agreement from EU countries, making it difficult to agree to new initiatives.

Austria and France, two of the leading advocates, have gone ahead with their own domestic proposals, and other proponents of the levy including Italy vowed to do the same.

Trade Spat

Critics of the levy have argued that the tax risks triggering the ire of President Donald Trump in the midst of a trans-Atlantic trade spat, as most of the affected companies would be U.S-based. Other countries have questioned the wisdom of the EU going it alone with such an initiative and have pushed for work to take place at global level instead.

Le Maire said the OECD work could agree to the key features of that digital taxation by the end of this year, with the possibility of entry into force in 2020. His optimism that consensus at OECD level could be adopted was shared by his German counterpart, Olaf Scholz.

“It is very, very likely that we will have a consensus that could be adopted in summer next year in the OECD level,” Scholz said.

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