American political pressure was heavy – and it has worked. On Monday, the European Commission announced that it is suspending plans for a new tax on digital services and products until the autumn. It was a gesture to US Treasury Secretary Janet Yellen, who was in Brussels on Monday for consultations.
Yellen had previously strongly urged the postponement of the ‘digital tax’, because it would jeopardize a groundbreaking international agreement on profit tax on multinationals. This weekend, finance ministers of the G20 countries gave their blessing to proposals from the OECD, the club of industrialized countries, to fight tax avoidance by multinationals. Worldwide there must be a minimum rate of 15 percent and multinationals must pay part of their taxes where their customers are. 132 countries support these proposals.
The OECD plans must be transposed into national law. In the US, the Senate must also agree to this. Success is far from assured, especially if senators feel that Europe wants to put a heel on the US. One of the driving forces behind the OECD proposals was European dissatisfaction with tax avoidance by American ‘Big Tech’ such as Facebook and Uber, although the final text is about all large companies.
Also read: EU tax havens are an obstacle to OECD tax plan
‘Discriminate against companies’
Yellen warned Sunday against “taxes that discriminate against American companies.” According to Brussels, the proposal for the digital tax is not aimed at tech companies from the US: hundreds of companies would have to pay for it, especially European ones. Details are unknown, but news site Politico wrote that it concerns 0.3 percent of the digital sales of services and goods for companies with a turnover above 50 million euros. Such a levy, reminiscent of an excise duty or VAT, is different from the corporate tax in the OECD plans. Nevertheless, the Biden administration fears that the Brussels plans will fuel Senate opposition to the OECD proposals. All the more so because European countries, including France and the UK, are still sticking to their national ‘digital tax’ for the time being.
The digital tax should generate revenue for the EU recovery fund of EUR 750 billion. The Commission borrows money from the financial markets to pay for the fund and those loans have to be repaid. According to MEP Paul Tang (PvdA), “no postponement should be allowed”. “The loans for the recovery fund have to be repaid one way or another,” he says on the phone. Tang thinks taxing the tech sector is the right way to pay for the recovery fund.” “Large digital companies have done well during the pandemic and often pay little tax.” In addition to the digital tax, a CO2-border levy should generate its own revenue for the Commission.
European employers are critical. The digital tax would hinder digitization in Europe if introduced unilaterally, BusinessEurope wrote last week vorige in a letter to Commission President Ursula von der Leyen. According to the employers, one of the objectives of the recovery fund is digitization.