If Europe Can Tax Google, So Can Everybody Else

(Bloomberg Opinion) -- France and Germany have now reached a consensus on how to tax some of the Silicon Valley giants. America, the ball's in your court.

The two countries released a statement in the early hours of Tuesday morning declaring their support for a 3 percent tax on digital ads, providing a breakthrough in European Union wrangling on how to deal with big tech. It's essentially a levy on Facebook Inc. and Google parent Alphabet Inc.

The accord represents a softening of the French position, which had initially sought a broader tax on data. That was a problem for Germany and its capital goods exports – the dawn of the internet of things means cars, gas turbines, washing machines and factories are increasingly web-connected. Levies on the flow of data could be as big a problem for Volkswagen AG, Siemens AG and Robert Bosch GmbH as they could for Google or Facebook. The focus on digital ads assuages those German concerns, even if it’s a significant tempering of Gallic ambitions. 

Germany was likely also nervous that targeting U.S. tech giants could result in retaliatory duties from the Donald Trump regime on the import of luxury cars. Toning down the tax demands so they don't target the likes of Amazon, Apple and Microsoft directly might ease those worries.

If Europe Can Tax Google, So Can Everybody Else

Though a unanimous vote is required for the proposal to become EU law, France and Germany should be able to win over the likes of Ireland, which will probably oppose the agreement since Facebook and Google pay a lot of their European taxes there. What the continent’s two biggest economies want usually goes.

The significance of the Tuesday agreement is ultimately bigger than the bloc’s accord. The initial EU proposals unveiled in March anticipated a continent-wide 5 billion-euro ($5.7 billion) windfall. The watered-down version will be significantly less than that.

The far bigger consideration is the Organization for Economic Cooperation and Development, which is developing proposals for a multilateral change to the tax regime with the intent of plugging a global tax loophole of as much as $250 billion. Its plan should be completed next summer and presented to the G-20 for adoption the following year.

It's surely not a coincidence that France and Germany breathed new life into the EU discussions the very morning that the relevant OECD taskforce convenes in Paris for two days of talks. The two countries can now present a united front as they head into the discussions.

It does seem to accelerate the pressure on the U.S. to reach an agreement on how to crack down on profit shifting by tech firms to more-favorable tax regimes. Earlier efforts to solve the problem foundered in the face of opposition from the Barack Obama administration, particularly on the issue of how to handle Silicon Valley. So far, Donald Trump's government has been willing to engage in efforts to find a remedy. That France and Germany have now joined Britain, Spain and Italy in proposing taxes on the Silicon Valley giants by 2021 creates a looming deadline which should help the U.S. stay the course. All those countries have promised to adopt the OECD proposals instead of their own laws if they’re accepted by the G-20.

This might be an arrangement that big tech can live with. Companies don't want different rules in each country, as they might risk getting taxed twice – on revenue in one part of the world, and profit in another. They would far rather have a uniform, multilateral solution.

For the likes of Facebook and Google, the same suboptimal solution everywhere is probably better than getting whipsawed between the great and the terrible from one country to the next.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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