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EU Finance Ministers Seek 'Equalization Tax' On Tech MNEs

Tuesday, September 12, 2017

The finance ministers of France, Germany, Italy, and Spain have put their names to a letter proposing a new approach to the taxation of multinational digital companies in the European Union.

The letter, addressed to the Estonian Presidency of the EU, calls for the introduction of a tax based on revenue, in addition to existing taxes on companies' profits, to be known as an "equalization tax."

It says: "We ask the EU Commission to explore EU-law-compatible options and propose any effective solutions based on the concept of establishing a so-called 'equalization tax' on the turnover generated in Europe by the digital companies. The amounts raised would aim to reflect some of what these companies should be paying in terms of corporate tax. This proposal is practical. It does not call into question the essential work on the common corporate tax base (CCTB) and consolidated common corporate income tax base (CCCTB). The Commission could decide to propose a legislative initiative accordingly. It will demonstrate our commitment to appropriately tax the companies of the digital economy in a way that reflects their genuine activity in the EU."

The letter says large companies should not be allowed to pay "minimal" taxes to EU treasuries while conducting substantial levels of business.

The development is significant as it shows that there is growing support for new EU laws to tackle profit shifting, with France and Germany having pushed the idea of corporate tax harmonization in recent weeks.

It also comes days after Estonia, which is holding the six-month rotating presidency of the EU until the 2018, warned at a recent conference on this issue that unilateral approaches to digital taxation are ineffective.

The Estonian presidency said that it is aiming to obtain an agreement on the harmonization of EU tax rules in this area by the end of its presidency of the EU.