EU finance ministers shelve digital tax plan

At a meeting of European Union finance ministers on Tuesday in Brussels, governments scrapped a plan to introduce an EU-wide digital tax as some states opposed it, the Romanian presidency of the EU said.

Romania's Eugen Teodorovici, speaking in a public session of a meeting of EU finance ministers, said there was no agreement on the tax despite months of talks. 

He said ministers would focus on trying to reach a common position for the reform of digital taxation at a global level.

The move is likely to be welcomed by digital giants such as Alphabet Inc's Google and Facebook, which would have fallen under the scope of the proposed 3 percent levy.

Meanwhile, a top US trade official said on Tuesday that the US was weighing whether to bring a complaint to the World Trade Organization against "discriminatory" new taxes on digital giants being planned by EU nations, a top US trade official said Tuesday.

"We think the whole theoretical basis of digital service taxes is ill-conceived and the effect is highly discriminatory against US-based multinationals," Chip Harter, a Treasury official and US delegate for global tax talks, said in Paris.

What's next?

Teodorovici said ministers would now focus on trying to reach a common position for an overhaul of digital taxation at a global level by 2020.

Reforming tax matters on a global level have proven tough because of widely differing interests among major EU member states.

The Organization for Economic Co-operation and Development (OECD), a club of mostly wealthy nations, is currently working on a global reform of digital taxation to narrow loopholes that allow large multinational firms to greatly cut their tax bills.

The EU will reopen its debate on possible tax measures in the bloc if the OECD's planned reform is delayed, Teodorovici said.

The tax rules that currently exist were designed to apply to business models with a physical presence, which usually is the basis for the governments to exercise their tax powers.

However, the rise of new technologies has changed all that. Many digital businesses have customers and generate economic value in a country without having a presence in that country. This mismatch — and the fact that digital businesses make their money mostly from intangible assets — poses a challenge when it comes to taxation.

av/rc (Reuters, AFP)

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