European tax on digital giants faces resistance led by Ireland

France’s campaign to institute a new levy for digital companies such as Amazon.com Inc. and Facebook Inc. ran into early difficulties as the European Union seeks to align its tax policy with more modern and technologically focused businesses.

French Finance Minister Bruno Le Maire told colleagues at a meeting in Tallinn, Estonia, that the bloc should agree to a tax on the digital industry by mid-2018 as a matter of fairness. Ten countries, including Germany, Italy, and Spain, have formally backed the initiative. Eight others have reservations, he said, led by Ireland.

“The very, very considerable difficulties in taxation of this sector” became clear at this meeting, Irish Finance Minister Paschal Donohoe told reporters on Saturday, explaining that any such levy should include the U.S. and other Group of 20 countries. Ireland joined other nations in raising “very big questions about how such a measure could be implemented,” he said.

Traditional taxation practices have failed to capture business from an industry where value-added tends to be virtual rather than material and digital companies have sought to take advantage of loopholes created by uncoordinated European regulation. Yet the opposition matters because the EU requires unanimity among its 28 members to implement tax policies.

France has proposed a temporary levy on revenue because taxing profits is complicated under international rules. Implementation of a new policy would take years, meaning it could be a while before any money was actually raised.
Denmark and Luxembourg were among the countries that urged the EU to proceed with caution. Malta raised the specter of the financial transaction tax, which various French governments have been lobbying for since the financial crisis, without tangible results.

“I hope it’s not another financial transaction tax,” Maltese Finance Minister Edward Scicluna said. “One has to look at it globally rather than partially because it involves the U.S., it involves China.”

Danish Finance Minister Kristian Jensen warned that a European tax could risk driving business abroad. “I’m always skeptical about new taxes and I think that Europe is taxed heavily enough,” he said. The digital industry is “the future,” he added.

Austrian Finance Minister Hans Joerg Schelling proposed that current discussions only apply to a temporary solution before passing that outline on to the Organization for Economic Cooperation and Development, a group that advises its 35 members on policy, for a more comprehensive fix.

Le Maire invoked the EU’s need to counter anti-European political movements in his campaign for the tax, calling to mind French President Emmanuel Macron’s hard-fought election victory over populist Marine Le Pen in May as a reason to accept the reform.

Le Maire said he is prepared to travel to Dublin and other European capitals to discuss the issue. The topic will be discussed at the next meeting of EU finance ministers in Luxembourg in October and the group should be ready to make a formal proposal by December, he said.

“I’m not looking for confrontation,” Le Maire told journalists after the meeting. “I’m convinced we’ll find a solution.”