The EU Call For Progress On Digital Tax Rules At G20 Meeting

European bankers and finance ministers pressed for the progression of the proposed global tax rules for the digital economy at the recent G20 meeting in Buenos Aires, Argentina. The projected annual tax revenue from such a proposal, according to the EU, would amount to around 5 billion Euros ($5.85 billion) and would affect around 200 digital companies.

This call for digital tax rules was in reference to the rules proposed by the European Commission in early 2018 that called for the increased taxation of digital companies – especially large ones such as Facebook and Google. This call for progress has put them at odds with US finance leaders.

The European Commissioner for Economic and Financial Affairs Pierre Moscovici stated that this proposal was put forward to have a level playing field and to ensure that digital companies end up paying their fair share of taxes. Major companies such as Facebook and Google are set to pay the lion’s share of the taxes, whatever the outcome of the final digital tax proposal. In the meantime, a turnover tax was proposed by Moscovici as an interim solution, before any solid regulations are put in place.

EU tax and customs

US Digital Economy Under Fire?

The digital companies covered by the proposal are largely US owned and it drew a strong response from US representatives who felt that this motion is an attack on their digital economy. Earlier in 2018 as the proposal was being made, Steven Mnuchin, US Treasury Secretary voiced out his disapproval to the EU’s proposal and said that such a proposal deliberately singled out American digital companies and took issue with the same given that these major digital companies played a vital part in the US economy.

Scrapping the “Pot-of-Gold” Approach

As of now, it is not clear how to place a value on the international user-base of digital services from companies like Facebook and Google; therefore working out the tax situation becomes complicated. Scott Morrison, Treasurer of Australia commented that the G20 discussions on the proposal were useful in identifying this problem.

If a mutual agreement is not reached on this issue, more countries are going to start to use “interim measures” of taxation on digital companies, which basically entail a sales tax on digital advertising. Such measures have yet to show their effectiveness. Attention should be given to solving the issue of assigning value to an online service’s user-base, instead of the ‘pot-of-gold’ approach as Morrison dubs it.

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