PARIS: French Finance minister Bruno Le Maire will present proposals to tax large internet based companies on their turnover – not their profits – to EU finance ministers at an informal Ecofin meeting in Estonia tomorrow. He briefed journalists on the plan, which he has discussed with a number of other finance ministers, including Ireland’s Paschal Donohoe, and the US treasury secretary Steve Mnuchin. The plan – which the French refer to as an equalisation tax – is backed by the finance ministers of Germany, Italy and Spain, who along with France account for almost three quarters of Euro Area economic output. In the briefing, Mr Le Maire stressed that the tax was not intended as an attack on or punishment of internet based companies, particularly US ones. However he said citizens could not understand how companies could make vast profits and not pay what he called “their fair share of tax” in Europe. He said a turnover tax could raise an amount similar to the amount of corporation tax these companies do not pay in Europe. However the proposal is fraught with difficulties – not least the problem of collecting the tax and apportioning it among the different states of the EU. Some have described it as a back door way to fast track in the most important aspect of the European Commission’s plan for a Common Consolidated Corporate Tax Base – namely to share out the receipts from corporate profit tax based primarily on where sales actually take place, rather than where a company is domiciled for tax.
Under the EU treaties, taxation measures such as this must be agreed by unanimity – in other words any one country can block the proposal using the so-called national veto. There has been some talks, inspired by Commission President Jean Claude Juncker’s “State of the European Union” speech on Wednesday, that the European Council could use the so-called Passarelle clause of the Lisbon treaty to change tax from unanimity to qualified majority voting. This is unlikely for two reasons – firstly any such move requires the unanimous support of the entire European Council – ie – any one government leader could veto the proposal. Secondly, even if every leader supported the move, the EU treaty requires them to send the proposal to the national parliaments for a six month review period. During that period, if any single national parliament votes against the change, the matter lapses. In effect there are two vetoes over moving tax from unanimity to qualified majority voting. In Ireland there is a belt and braces approach, with a constitutional article mirroring the EU treaty requirement that the Oireachtas would have to vote on any such proposal. So the danger that Ireland could be steamrollered on this issue are vastly overstated. Nevertheless, Mr Le Maire has a point when he says that the internet economy is going to get bigger, not smaller, and so the issue of taxing digital companies will not go away – indeed it will grow in importance.
