The European Commissions proposal to introduce a temporary levy to tax the revenues of digital giants is causing deep divisions between European countries, according to a POLITICO analysis of diplomatic positions.
Shortly after the proposal was unveiled in late March, the EUs five biggest economies, including France and Germany, published a statement voicing support for the Commissions proposed “digital tax,” which would amount to a radical change in the way taxes are levied. France in particular has championed the idea, claiming the support of 19 countries last year.
But as the idea for a temporary digital tax has moved from an interesting debate to a concrete Commission proposal, several countries are reconsidering their initial support. Germany is wavering over concerns that such a tax could exacerbate tensions with the United States, and potentially penalize the domestic car industry. A bloc of Central and Eastern European countries, meanwhile, are concerned about a second, longer-term initiative on digital taxation that the Commission has proposed.
The long-term initiative aims to update the blocs corporate tax rules for digital firms. The Commission has said that the reform would ensure that company profits are “registered and taxed where businesses have significant interaction with users through digital channels.” That level of interaction would be based on specific thresholds targeting the number of users or business contracts that digital firms have in a country.
Those thresholds have smaller EU governments worried that the size of their economies and populations would cut them out of getting their fair share of revenue from the tax.
The first Council meeting will set off the starting gun for difficult negotiations, expected to drag on for months.
Interviews with diplomats and industry insiders provides a snapshot of current positions which suggests that of 28 EU members, seven are staunch supporters of the temporary digital tax idea, two are neutral, 11 are on the fence and seven are clearly opposed.
The fragmentation of positions on the idea underscores how difficult it will be to obtain unanimous backing for a digital tax at the level of the Council of the EU, where all countries would have to sign off on the proposal.
The first Council meeting, scheduled for Wednesday, will set off the starting gun for difficult negotiations, expected to drag on for months.
Such fault lines, which have deepened instead of narrowed over recent months, suggest that the taxs main champions will either have to avoid the unanimous approach and try for enhanced cooperation between countries — a tactic that French officials say they want to avoid — or find ways of pressuring the most recalcitrant member nations, namely Ireland, into accepting the deal.
Here is a map, compiled thanks to conversations with a range of diplomats and people familiar with recent discussions on digital tax, offering a snapshot of where every EU country stands on the proposal.