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EU Drops Digital Tax Plans

Thursday, March 14, 2019

The EU will not proceed with plans for a digital services tax, after finance ministers again failed to agree on the proposals.

EU finance ministers met on March 12. According to the European Council, progress has been made since ministers last discussed the issue in December. Negotiations have focused on a compromise text proposed by France and Germany, which would limit the scheme to digital advertising services.

However, the Council said that "despite the broad support from a large number of member states on this text, some delegations maintain reservations either on some specific aspects of the proposal or more fundamental objections."

The original proposal, put forward by the European Commission, was for a temporary three percent excise tax on turnover from certain online activities. In December, Austria, then holding the Council presidency, proposed an amended scheme that would target revenues from the supply of digital services where users contribute to the process of value creation. France and Germany separately recommended that the tax base focus on advertisement.

The Council said that the current Romanian presidency will now "conduct work on the EU position in international discussions on digital tax, in particular in view of the OECD's report on the issue, due by mid-2020."

EU Vice-President Valdis Dombrovskis said that the Commission regrets that agreement was not possible. He explained that the Commission is concerned that the introduction of separate digital tax regimes in a number of EU countries "will lead to the fragmentation of the single market."

Dombrovskis said that the Commission "will continue to take active part in the global conversation on this matter" and that it hopes EU countries will "speak with one voice in international fora." He stressed that the issue is important "because our economy is becoming increasingly digital and thus our tax systems [are becoming] increasingly outdated."