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EC Council meeting – will the French ‘Google tax’ work?

This week sees the first European-level summit dedicated to the digital agenda, with member states more keen to focus on the ‘digital single market’ than engage in a debate about data protection regulation.

High on the agenda of taxation measures for the digital sector are French-backed proposals for a new so-called ‘Google tax’ on what are described as ‘over-the-top’ service providers. But will it work?

Tax systems worldwide have found it difficult to keep up with digital business. In Europe, VAT rules have made strenuous efforts to adapt to digital services for both individuals and businesses. However, when it comes to direct taxes (corporation tax and the like) the position is much more complicated.

So complicated, in fact, that many foresee huge difficulties in implementing global change. Of course, if new tax rules do not apply globally, then those jurisdictions which do not participate may find themselves playing a role in tax avoidance by digital business.

Following recent OECD and EU pressure, the Republic of Ireland has already decided to take its own steps to block a specific tax loophole. The development of a concerted action plan by the EU member states as a whole (including the Republic of Ireland) is a logical next step.

It will be fascinating to see whether the heads of state, with all their different agendas, can find sufficient common ground to come to any worthwhile agreement.

The French plan proposes a minimum levy calculated on a common base across all EU countries. The French minister for the digital economy, Fleur Pellerin, has pushed hard for this, recently telling a conference that the top five US-based internet companies were stifling European innovation in new technologies, and so should be more tightly regulated and taxed.

Interestingly, Mike Williams, the UK Treasury’s Director for International Business agreed saying it was important that companies contribute a fair share to the country’s taxes, where they take advantage of the infrastructure.

But the French ‘Google tax’ is likely to be strongly resisted by many member states’ leaders at the summit.

The EU’s Tax Commissioner acknowledged the issue was one of the most important in the field of international taxation, and noted that current taxation systems were designed long before the computer era. He said it was important to ‘ensure that the tax system does not weigh on growth, and it is effective enough’, but apparently is unconvinced by the idea of a ‘Google tax’.

He said he thought it was good that France was thinking about it, but that they shouldn’t rush to conclusions and must take time to think.

The draft conclusions for the summit confirm that continuing work to tackle tax avoidance, tax base erosion and profit shifting is important for the digital economy, and that members need to coordinate their position in order to achieve the best possible solution for the EU.

They also recommend that the EC, in the context of its ongoing VAT review, should consider ‘differentiated tax rates for digital and physical products’ and report back to leaders at a summit in December which will consider a wide range of taxation issues.

This was posted in Bdaily's Members' News section by George Bull .