Tech Tax Advocates Prepare Last-Ditch Push for EU Deal

(Bloomberg) -- Proponents of a tax on the European revenue of tech giants are preparing a last-ditch push for a deal this week, amid continuing resistance to a levy that divides the region’s governments and threatens to fragment its single market.

European Union envoys in Brussels will discuss the latest compromise proposal on Wednesday, said a person familiar with the matter. Austria, which holds the rotating presidency of the bloc, seeks a political agreement on the tax that would hit the likes of Facebook Inc. and Alphabet Inc.’s Google at a meeting of the finance ministers next week, according to documents seen by Bloomberg.

Here are the main elements of the draft compromise tabled by Austria, according to an internal memo dated Nov. 23:

  • A 3 percent levy would be imposed on the European sales of companies with a global annual revenue of 750 million euros ($850 million) or more.
  • The idea behind the proposed EU tax is to pay the levy to the country where tech users are based, rather than where a company places its headquarters. The levy would apply on revenue from “targeted advertising,” “intermediation services,” and “sale of user data.”
  • “Identifying the place where a user’s device has been used and, therefore, the place of taxation should be possible due to the Internet Protocol (IP) address of the user’s device.”
  • Member states will be free to deduct the digital services tax from the corporate income tax base in their territory.
  • “Revenues resulting from the supply of communication or payment services should therefore remain outside the scope of the tax because such suppliers do not operate as a marketplace, but rather produce support software or other information technology instruments.”
  • “The provision of regulated financial services” such as trading execution, which are aimed at providing a safe environment for transactions by regulated financial entities “should not fall within the scope” of the levy. “However, the provision of non-regulated services by regulated financial entities could fall within the scope.”
  • If political agreement on the tax is reached, then member states will be required to transpose the directive into national law by end-December 2021 “at the latest.” The tax will be applicable on revenue generated as of 2022.
  • By end-2020, the European Commission will prepare a report “assessing the progress made on the revisions to the international corporate tax standards to address the challenges arising from digitalization agreed at the OECD level.” If enough progress has been made toward a global approach to taxing tech companies, the bloc’s executive arm could propose to postpone or repeal the European levy.
  • The Austrian presidency’s proposal envisages that the tax will expire “upon the entry into application of the revisions to the international corporate tax standards to address the challenges arising from digitalization agreed at OECD level,” or by a specific date yet to be agreed.

The person familiar with the discussions among EU member states said that despite the introduction of so-called sunset clauses that would repeal the levy if and when developed nations at the Organisation for Economic Co-operation and Development reach a deal on a global approach, skeptics including Ireland and Sweden still object to the tax. The prospects of reaching a deal are thus slim, the person said, asking not to be named as the matter is sensitive.

Even though unanimity is required for the introduction of taxes at EU level, frustrated advocates of the tax, including France, could opt to go it alone, or introduce the levy in coordination with willing governments. Member states including Spain, Italy and the U.K. have already announced plans for a digital tax, following a global trend where countries including South Korea, Singapore and Australia are proposing their own strategies.

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