THERE IS, SAYS Bruno Le Maire, France’s finance minister, a need for “European sovereignty in the face of digital giants, which are now as powerful as sovereign states”. The issue is tax—or rather a lack of it. The most creative corporate tax minimisers are big, mostly American, technology firms. Countries such as France and Italy harrumph that they are deprived of billions in tax receipts each year as Google, Amazon and their kind magic profits away from where business is done to where they are taxed least. The European Commission reckons digital firms pay 9.5% in income tax on average, compared with 23.2% for firms with “traditional business models”.
The OECD, a club of mostly rich countries, was meant to tackle digital non-taxation as part of a global corporate-taxreform initiative called BEPS (Base Erosion and Profit Shifting). Progress, however, has been glacially slow. Fed up with waiting, Europe vowed to act on its own. Yet the breakaway is not going to plan.
In March the commission proposed a tax on sales, which are harder to shift to tax havens than profits. The mooted 3% levy would apply to digital services and sales, including sales of users’ data, regardless of whether the firm had a physical presence in the European Union. Tech companies with global annual revenues of €750m ($850m) or more—an estimated 200 or so—were expected to fall within its scope.
The plan has since been tweaked several times. A sixth compromise text was put to EU finance ministers on December 4th. But the commission knew it was going nowhere: EU tax proposals require unanimous support, and several countries, including Ireland and Sweden, had made their continued displeasure known. France and Germany responded by jointly offering yet another compromise, targeting web firms’ advertising sales only—thus not covering the likes of Amazon and Airbnb. That might raise about half as much as the original proposal, officials reckon. Even this dilution drew raspberries from some countries. The ministers agreed to try to move forward “as soon as possible”.
The naysayers argue variously that such matters are best left to the OECD, that an EU-only approach would breach international treaty obligations, and that it could hurt European firms as well as American ones. Some also worry (but tend not to talk publicly) about repelling investors. Low-tax Ireland, currently favoured by tech firms, would be an estimated €160m a year worse off if the EU pressed ahead.
Supporters say a European tax need not undermine global reform efforts; it could even focus minds in the OECD-led talks and hasten a multilateral deal (which, thanks to a “sunset clause” in the proposed EU levy, would trigger its withdrawal). Their optimism is ebbing, however. An exasperated Pierre Moscovici, the EU’s tax commissioner, declared last month that “we are reaching the limits set by unanimity” on tax issues and that next year he will therefore propose switching to majority voting.
With member states struggling to find a common approach, some are preparing to act on their own. As many as 11 EU countries have announced or are considering national digital-sales taxes (as are several elsewhere, including South Korea and Australia). Britain, for instance, is holding a consultation on a 2% levy on firms with over £500m ($635m) in revenues—though it says a global accord would be preferable.
What chance of such an agreement? Optimists talk of the OECD pulling together a deal by 2020. But America, protective of its tech giants, is “not much interested in making progress”, says Alex Cobham of Tax Justice Network, a campaign group. Mind you, America is even less keen on the idea of Europe’s regional tech tax. The congressional committee that oversees tax issues recently wrote to Brussels, decrying its proposed tech levy as “designed to discriminate against US companies…creating a significant new transatlantic trade barrier”.