Taxing digital giants a prelude to dreaded EU tax harmonisation, Sant warns

The Labour MEP Alfred Sant has voted against the introduction of a harmonised digital tax on tech giants like Google, Apple, Facebook, and Amazon (GAFA) warning of the impending move towards a harmonised tax structure for all EU member states.

“While this report supports the introduction of such a tax, it does so as part of a strategy by which on a European scale, we move towards a harmonisation of taxation, not least by putting in place the tools that would make such harmonisation easily possible… I doubt whether taxation of sales of digital business need be contemplated on a European, as contrasted to a national scale.”

Members of the European Parliament adopted two opinions on proposals for Council directives for corporate taxes to be levied on companies with a significant digital presence, and a Digital Services Tax (DST), by an overwhelming majority.

MEPs agreed that the supply of “content on a digital interface such as video, audio, games, or text using a digital interface”, regardless of whether the content is owned by that entity or if it has acquired the rights to distribute it, should be taxed – for example, online platforms like Netflix.

EPs underlined that the DST is a temporary measure. Adopting the Significant Digital Presence, the Common Corporate Consolidated Tax Base or similar rules reached at the OECD or at UN level would be permanent solutions.

Alfred Sant voted against the DST resolution, calling it a “matter of non-negotiable principle”.

“Taxation should remain part of each EU member state’s sovereignty… it is right that digital business, especially that conducted by the GAFA be taxed on the same lines as businesses in other sectors of economic activity in the place where they conduct business. Given the nature of digital activity, where value is being added, where costs are being assumed and where profits are being made constitute matters that lack the clarity found in other economic activities.

“This makes it possible for GAFA and others to fudge their income statements so as to avoid having to pay taxes due on their profits. In these circumstances it is legitimate to introduce a tax on their sales, where these occur, to curtail and eliminate such tax avoidance – the four most powerful American technology companies.”

In the DST report, approved in December with 451 votes in favour, 69 votes against, 64 abstentions, MEPs agreed to reduce the minimum threshold above which a company’s revenues are liable to be taxed. The rules would apply to any entity generating revenues within the EU of more than €40 million during the relevant financial year. The European Commission had proposed that this should be €50 million.

The rapporteur on the Digital Services Tax, Dutch socialist Paul Tang, said: “Both the European Parliament and the European people want tech giants to pay their taxes. That is why we voted for a more ambitious digital service tax, also taxing revenues from online streaming services. We are talking about basic fairness, where everyone pays their fair share”.

The resolutions are only consultative: it will be up to the Council to decide by unanimity on the final content of the rules. The Parliament is pushing for an approval before the end of its mandate in April 2019.

In July 2013, EU ministers agreed on the need to establish a common corporate tax base. The European Commission then split its previous 2011 proposal into two directives: a directive establishing a common corporate tax base (CCTB), and a directive on a common consolidated corporate tax base (CCCTB). Both draft directives were tabled in October 2016 and are still awaiting Council’s agreement. In its resolutions, the European Parliament strongly supported this major reform of corporate taxation and introduced the notion of “digital presence” that would enable member states to tax digital companies.

In March 2018, the European Commission presented two distinct legislative proposals on a fairer taxation of digital activities in the EU. The first proposal (Corporate taxation of a significant digital presence), presented as the preferred solution, aims to reform corporate tax rules, so that profits are registered and taxed where businesses interact with users through digital channels. The second proposal (Digital Services Tax) is an interim tax which covers the main digital activities that currently escape tax altogether in the EU.