European Union digital tax plan flounders as states ready national moves

French Finance Minister Bruno Le Maire left and Chancellor of the Exchequer Philip Hammond after a meeting of G20 finance ministers. While Mr Le Maire backs an EU-wide tax Mr Hammond has said Britain will go it alone in imposing its own levy

Arriving at the meeting Tuesday in Brussels, the Danish minister of Finance, Kristian Jensen, said of his side: "Everything is possible in politics but I think that it is very hard to reach an agreement on the taxation of the digital economy".

Plans to impose an EU-wide digital tax on global tech giants appear to have floundered after several governments rejected them.

Complicating things further, the tax risks triggering the ire of President Donald Trump amid a transatlantic trade spat, as most of the affected companies would be US-based.

Ireland's Minister for Finance Paschal Donohoe, TD, said that the directive proposed by the European Commission (EC), with the strong support of Austria and France, would end up hurting small businesses and open economies.

The proposed launch date of 2021, provided no OECD deal is reached by then, would be a "face-saving solution" for everyone, said one German government official.

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The EU proposal is also meant to stop other countries going it alone with their own digital tax and creating a patchwork of schemes across the continent.

With the traditional French-German engine of European Union law making sputtering, Bruno Le Maire told a Brussels meeting of his fellow finance ministers that Paris now agreed with Berlin that the tax could be delayed until summer 2020 to give time for global guidelines to be finalised. Traditional tax rules have failed to capture these companies' activities, fueling anger from voters disgruntled after years of austerity and meager wage growth.

Given that this tax "is calibrated to reach out to the american companies, of course there will be a reaction of the Member States", he warned. The levy would apply on revenue from "targeted advertising" and "intermediation services", while the tax will be imposed on turnover, irrespective of profit or loss, and won't be connected to or "creditable" against existing corporate taxes, according to confidential memos circulated among member states and seen by Bloomberg. Critics of the new tax also say that it could stifle innovation. After the United Kingdom announced its tax last week, Representative Kevin Brady, a Republican from Texas, called the measures troubling and would prompt a review of the US tax and regulatory approach to "ensure a level playing field in global markets".

But such an agreement requires the unanimous support of all member states, and in the absence of that, France and Germany said they were new supporting a significantly less far-reaching plan. "Better have a European approach rather than patchwork of bad national taxes".

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