EU tech tax makes Germany wary as France offers a ‘sunset clause’

Olaf Scholz, Germany’s Finance Minister on Saturday stated that an in-depth debate is needed on European Union tax overhaul to raise levies on large digital firms. Also saying that an agreement could still be found by the end of the year. A proposal made from the European Commission in March states that digital revenues of large firms like Google and Facebook, that are accused of routing their profits to the bloc’s low-tax European Union countries, would be charged a 3 percent levy. Smaller countries like Ireland contest the plan in fear of losing revenues. Nordic governments also oppose the plan, as they think the tax could hold back innovation and prompt retaliation from the United States, which is place of origin to most of the firms who could be hit by the proposed tax.

At a Vienna meeting of the European Union finance ministers, Olaf Scholz told reporters: “It is necessary to take some time for debate.” He also said that he aimed at reaching a compromise by the year end. Scholz’s latest remark will be closely scrutinized by European Union governments who oppose the new tax, as Berlin, who initially pressed for the tax, took a more cautious approach as soon as Scholz came into office in March. This may make Germany to be perceived as not being up to the task. Officials at the European Union says that the tax could negatively affect Germany’s car makers, as they face retaliatory measures from international partners if digital revenue increases fall within the area of new taxation.

One of the main supporters of the new levy, French finance minister Bruno Le Maire, attempted to aid a negotiation by proposing to add “a sunset clause” to the European Union tax. The proposal stated the new tax would end once a deal is reached at global level on the taxation of digital companies. European Union partners saw the sunset clause as progression. Austrian Finance Minister Hartwig Loeger saying at the end of the European Union meeting: “There will be a sunset clause”.

The European Union plan already dictates that the 3 percent levy would be only a short-term solution until a global deal is reached, with Le Maire’s offer clarifying that the tax has an end date. French officials stated on Saturday that France is ready to deliberate ways to compensate for Ireland’s possible lost revenue. However, it seems Ireland remain restrained, as when asked about this the possible compensations,  Irish Finance Minister Paschal Donohoe stayed cautious and persisted that a global deal is the better answer.

European Union tax reforms needs the support of all its 28 EU members to be approved. Large differences remain among wealthy nations about overhaul of digital taxation at global level, and no compromises seem in close proximity. Austria is holding the European Union’s rotating position and is working to find a solution by the end of the year. Reducing the range of the tax by not applying the sale of users’ data, as in the Commission proposal, would only affect the revenue from virtual advertising services and marketplaces such as Google and Amazon. If no European Union solution is agreed upon, national web taxes are likely to be implemented.

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