Europe Digital Tax in Doubt as Malta Questions Year-End Deadline

(Bloomberg) -- Malta’s finance chief poured cold water over European efforts to strike a deal on taxing digital companies by the end of the year, saying such a levy should be agreed at a global level.

Finance Minister Edward Scicluna said in an interview with Bloomberg that the complexity of a tax on tech giants requires time to address and would be best dealt with at an international, multilateral body in the same way as other worldwide corporate tax rules.

“Why do we want to rush,” he said, adding that he doubts a deal could be struck by the end of the year.

His comments come after European Union finance ministers held talks over the weekend on a proposal aimed at ensuring technology giants pay their fair share in tax, amid growing public anger that corporations benefit from an outdated framework that struggles to deal with online businesses.

They underscore the resistance among certain nations, who would rather wait for an international approach rather than a quick EU-only fix.

Trade Tensions

Countries led by France are pushing for a rapid introduction of an EU tax on revenues of large tech firms such as Inc. and Facebook Inc. until the world’s wealthiest nations can agree on a global system. French Finance Minister Bruno Le Maire has been raising pressure on his European peers to move ahead with the levy, warning that voters would punish them at EU elections in May if they don’t act. Europeans can’t understand why tech giants pay lower tax rates than small companies based on European soil, he said.

But other nations are worried pushing ahead with such a tax -- which would target some of the biggest U.S. companies -- could exacerbate trans-Atlantic trade tensions. Germany, which exports more to the U.S. than any other EU country, may stand to lose the most in the case of an escalating trade war.

Scicluna echoed these concerns, saying that the digital proposal could complicate matters politically between the EU and the U.S., “exacerbating the issue of the trade war.”

“This is not just Ireland or Luxembourg or Malta,” he said. “Half of the council, especially the northern countries, understand that it’s foolish to go for a quick fix tax in a complicated area like that.”

Sunset Clause

Any tax proposal will need the unanimous approval of all EU members before becoming law, meaning a single country could block it.

The commission, the EU’s executive arm, presented a proposal in March for a targeted 3 percent levy on sales, which would increase the tax bill on large technology companies face. The commission also put forward a longer-term approach that would enable countries to tax profits made in their territory even if the firm doesn’t have a physical presence there.

In an effort to assuage concerns by countries including Ireland over the wisdom of the bloc going it alone given the global nature of digital services, France suggested adding a “sunset’’ clause that would allow the commission’s planned revenue tax to be automatically phased out once a global scheme is ready.

Still, that may not be enough for some holdouts.

The suggested clause “says that this quick fix will be removed once the permanent solution is found. The question is what about if this takes many years and never comes about?” Scicluna asked. “Will we remain with a quick fix? So why go for it?”

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