France races to save EU digital tax proposal

Finance Minister Paschal Donohoe

Finance Minister Paschal Donohoe

Irish finance minister Paschal Donohoe explained said his country's opposition to a digital services tax stems, in part, because of the bad precedent it would set for exporting and service economies.

The plan is aimed at changing tax rules that have let some of the world's biggest companies pay unusually low rates of corporate tax on their earnings.

A compromise is taking shape in the fight over a planned digital tax, with European ministers discussing delaying its launch until 2021, Handelsblatt has learned.

Le Maire told the Financial Times that this is France's last concession on an EU-wide digital services tax.

On Monday, Le Maire's German counterpart Olaf Scholz backed a European tax, but only if a broader solution was not found by summer 2020. It suggested on Tuesday that it could support allowing more time to implement a new tax system, so that the OECD can finish its analysis.

"There is no disagreement with Mr Scholz on this".

At a meeting in Brussels yesterday (6 November), Germany said it wants to delay a decision until a new report from the Organisation for Economic Co-operation and Development (OECD) is delivered in 2020, ushering in a potential global standard.

The plan, which requires approval from all 28 European Union member states, is opposed by many.

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The change of tack comes after France and the European Commission first advocated a provisional bloc-wide solution until an worldwide scheme is found at the Organisation for Economic Cooperation and Development, which groups major world economies.

Paris claims the tax would be a vote-winner in next years European Parliament elections, which have been framed as a battleground between pro-EU and Eurosceptic parties.

Similarly, Sweden's finance minister, Eva Magdalena Andersson, said that issues of income allocation should be left to global agreement.

US Treasury Secretary Steven Mnuchin, meanwhile, called for a global solution to the problem, warning against "unilateral action". Britain has said it will go it alone with its own digital tax of 2 per cent.

"It is very hard to see an agreement on the digital tax because so many technical issues are not solved yet", Danish Finance Minister Kristian Jensen said.

Adding to the confusion, the legal services of the European Commission, the bloc's executive arm, and the Council of member states disagree over the legal basis of the tax.

Initiatives to tax the giants of the digital have already been taken in the United Kingdom, India and Singapore, and plans are now in progress in Spain and Italy.

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