Margrethe Vestager speaks at European Commission

EU must lead with digital tax, argues competition chief

Image credit: REUTERS/Yves Herman

The EU competition commissioner has said that the EU must lead in imposing a digital tax on big tech companies

Danish politician Margrethe Vestager, the EU competition commissioner warned that: "We are becoming an increasingly digital world and it will be a huge problem if we do not find a way to raise [digital] taxes".

Her proposals for an EU-wide digital tax are, so far, widely opposed by several EU governments.

Vestager referred to the so-called GAFA tax (named after tech giants Google, Apple, Facebook and Amazon) to ensure the global internet giants pay a fair share of taxes on their massive business operations in Europe. The EU would should lead the way with the proposal, she said. 

A lack of clarity over how EU member states would implement the tax - which must ensure global internet giants pay their 'fair share' of taxes on advertising and other revenue earned in Europe – lingers. France has been driving hard for implementation of the proposal, but at a meeting of EU finance meetings over the weekend, Sweden, Finland, Ireland and Denmark blocked a draft EU-wide GAFA tax proposal, Reuters reported.

In November 2018, the proposal on a EU tax on digital sales, which the Government feared could hit Irish tax revenues from internet giants based in the country, was dropped after an alliance of Ireland, Sweden, Denmark and Germany blocked it in Brussels. 

One important aspect of the debate was that the tax would be payable where the user of the technology is based, instead of where the companys headquarters is located. France, the UK, and Germany remain the largest software markets in the EU, contributing more than 60 per cent of total EU direct software industry value-added GDPAccording to a report by iab Europe and IHS Markit, the UK, Germany, and France are among the largest online advertising markets in the world.

France remains one of the leading defenders of the GAFA tax proposal. Today, Lawmakers in Frances National Assembly, Frances lower house of Parliament, started to debate a draft of a ‘national GAFA tax law’.  Objections by the Irish government to the tax proposal would stem from the conflict that - like a common consultation tax base before it - the GAFA tax would undermine the basis of Irelands corporate tax regime.  

As announced in last spring, companies with significant digital revenues in Europe would need to pay a 3 per cent tax on their turnover on various online services in the EU.

Calculation suggests it would amount to around €5bn (£4.4bn). A number of companies have their European headquarters in Ireland, including Google, Apple, Paypal, and eBay. 

The country is also the worlds second largest software exporter, according to calculations by The Economist Intelligence Unit, and home to over 900 software companies, which combined employ 24,000 people and generate €16bn (£13.8bn) of exports annually.

Across the EU, software sector supports 12.7 million jobs and contributes as much as €1tr (£890bn) to EU GDP.  

In addition to proposals to impose added taxes, technology companies in Europe face increased scrutiny that could lead to higher fines if they fail to comply with regulations. In March, Google was fined €1.5bn (£1.3bn) for 'strangling" competition in the advertising market.

A new paper launched today proposes penalties on social media companies and technology firms fall short in protecting users from harmful content.

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