European Union digital tax levy could be delayed until 2020

Finance Minister Paschal Donohoe

Finance Minister Paschal Donohoe

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".

Under the proposal, a 3pc levy would be put in place on digital revenues of large tech firms. The original plan was to impose the digital services tax immediately and later remove the tax if the OECD succeeded in attaining worldwide agreement.

France's Finance Minister Bruno Le Maire, who has always been the main supporter of the tax, accepted delaying its implementation to the end of 2020, a major concession. "We are open on that question, because we know there is work done by the OECD", he said.

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.

The U.K., often seen as a tech-friendly hub, last month announced plans to introduce its own tax on the largest Internet companies, with the goal of raising 400 million pounds ($521 million) a year.

While the harshest criticism had previously taken place behind closed doors, on Tuesday many European Union finance ministers voiced their concerns at a meeting in Brussels that was streamed over the internet, allowing their disputes to be aired publicly. "Of course there will be a reaction from the USA", he said, calling the tax "not a good idea for Europe". 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. The 2pc tax, revealed in the latest United Kingdom budget, will target revenues earned in the United Kingdom by online players ranging from search engines to social networks.

In the run-up to Tuesday's meeting, some countries also expressed doubts about whether the initiative would violate existing treaties on avoiding double taxation.

France, backed by EU-presidency holder Austria, wants a law proposal by the end of the year leaving little time to get opponents on side as European tax rules require unanimous backing by all EU members.

"If we do nothing, the EU will be split up like a puzzle and our European businesses will be the first to suffer", EU Economics Commissioner Pierre Moscovici told the ministers.

The aim is to reach an agreement at the council's next meeting on 04 December.

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