The EU will resurrect talks on a digital services levy if a global deal on the taxation of corporate giants fails, a senior European policymaker has warned.
Zbyněk Stanjura, the finance minister of the Czech Republic, which holds the rotating EU presidency, said a number of member states fear that the US will not implement the global agreement agreed last year, which would force the world’s 100 biggest multinationals to declare profits and pay more tax in the countries where they do business.
In such an eventuality, EU governments would return to shelved discussions to implement a digital services tax, Stanjura predicted in an interview in Brussels, arguing that any such levy should be at a bloc-wide level.
“I really am not able to say whether we are going to wait for six more months or nine more months, but I believe the longer these negotiations will take, the less of a chance of actually reaching an agreement,” said Stanjura. “If we are not able to reach an agreement mid or long term, then Europe will go back to talks about digital tax.”
Last year, 136 countries backed a two-pronged deal that aims to address public anger over multinationals not paying enough tax. The first pillar of these reforms would force the largest companies to reallocate a share of profits to where they do business, ensuring they pay a fairer share of tax. The second pillar creates a minimum effective corporate tax rate, currently envisaged at 15 per cent.
Progress on implementation has faltered despite OECD calculations that governments could collect more than $150bn in additional taxes every year from the biggest companies. Last month, Pascal Saint-Amans, the former OECD official who masterminded the tax reforms, predicted the US would ultimately sign up, given the alternative would be to see big tech companies confronted by a hodgepodge of separate digital services taxes in different countries.
But the prospect of the reform being implemented before the OECD’s proposed deadline of mid-2023 has faded and the likelihood of Republican gains in Tuesday’s US midterm election could further dent hopes of progress.
Any revival by the EU of unilateral plans to tax digital giants would spark trade tensions with the US, at a time when the two economies are already sparring over America’s proposed green subsidies.
Peter Barnes, a tax specialist at the Washington law firm Caplin & Drysdale, said it was highly unlikely that the US would implement the first pillar by the middle of next year irrespective of how the midterms pan out. The measure was “contentious”, he said. “Getting legislation passed quickly is just not going to happen.”
He added that if new digital services taxes were imposed by the EU or other countries, the US would likely bring legal action if the new taxes unfairly targeted American companies.
As Czech finance minister, Stanjura helps oversee the council of the EU’s economic agenda during the country’s six-month presidency of the bloc, which ends in December. “I’m not confident we will be able to reach an agreement” in the OECD on the first pillar of the tax reform, he said. “To speak clearly without blurring the issue, I believe the problem is more on the American side.”
The EU shelved a proposed digital levy in the summer of 2021 under US pressure given the progress at that time towards an OECD deal.
EU officials stressed at the time that the digital proposal would differ from a 2018 plan that targeted the world’s largest tech companies — a measure that ultimately foundered. Brussels was instead planning to target hundreds of companies with digital operations, rather than specifically aim at US tech giants.
The US has in the past threatened to impose sanctions on European countries that introduced digital services taxes.
Stanjura was speaking ahead of talks on Tuesday among EU finance ministers in Brussels. The EU has also been unable to implement the second pillar of the OECD tax regime because of opposition from Hungary.
The Czech minister said he remained confident that the EU would be able to strike an agreement implementing that aspect of the OECD programme, perhaps this year. But he added that it would be better for the whole world if both pillars were implemented at the same time.
