EU states resist move on digital tax for tech giants

Some European Union members are resisting EU plans to raise the tax bill of tech multinationals, EU draft documents seen by Reuters show, in moves that are likely to cause a public outcry after several disclosures of corporate tax avoidance schemes.

EU finance ministers are expected to seal a preliminary deal on EU digital taxes when they meet on Dec. 6, after pressure from large states that accuse firms like Amazon, Google, Apple and Facebook of slashing their tax bills by rerouting their EU profits to low-tax countries such as Luxembourg and Ireland.

France has openly called for an “equalisation tax” on the turnover of digital companies, aimed at levelling up the amount of tax they pay on their earnings compared with other types of companies.

The European Commission, the EU’s executive arm, and the Estonian presidency of the EU have also backed a major tax overhaul.

But EU envoys are gradually toning down the scale of the reform, according to documents seen by Reuters.

An early draft of the finance ministers’ meeting conclusions, dated Nov. 6, said an equalisation levy “could be considered” as a temporary measure, before a wider tax overhaul.

It also said the EU should not rule out adopting tax measures unilaterally if no deal was reached on a global level.

But the most recent draft, dated Nov. 20, focuses on stressing the EU’s “preference for a global solution”.

Global deals on tax reforms are seen as very difficult to achieve. Critics say that linking EU reforms to global agreements would postpone them indefinitely.

Smaller EU countries, like Luxembourg or Malta, have said an EU solo move on corporate tax reform would damage its economy and favour competitors.

The new draft has also softened the wording on the equalisation tax. A note of the Estonian presidency included in the text said that “views of delegations remain divided (..) in particular on the reference to an equalisation levy” with some states calling for it to be deleted.

Disclosures of tax avoidance schemes by multinationals, like the LuxLeaks, Panama Papers and the most recent Paradise Papers, have increased public pressure for fairer corporate taxation.

The EU’s tax commissioner Pierre Moscovici last week likened companies that evade taxes to “vampires” and called for quick action to counter tax avoidance schemes.

The early draft of the ministers’ conclusions urged the development of a new method to calculate a corporate tax base so that companies with a “virtual permanent establishment” in a country could be taxed there.

Currently corporate taxes are paid where firms have a physical presence, which allows large digital multinationals to book most of their profits in the low-tax countries where they have set up headquarters.

The most recent draft said that this change should only be “explored” rather than developed. A note in the text said that some countries favoured a further watering down.

Talks among EU countries will continue in coming days and new draft texts are likely to be prepared, EU officials said, before the finance ministers’ meeting in December.