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EU To Table A Digital Tax Proposal In October

Wednesday, September 15, 2021

The European Commission has committed to tabling a proposal for a digital tax in October, whether or not an international agreement surfaces from OECD-led talks on new international tax rules for the world's largest firms.

The pledge was made after members of the European Parliament said the Commission had reneged on promises made in return for lawmakers' support for the EU Budget.

In December 2020, to secure support from EU lawmakers for its Multiannual Financial Framework for 2021-27, the Commission agreed a binding timetable for the proposal and implementation of new tax levies (new "own resources") to fund the EU.

Specifically, EU authorities committed to table proposals in June 2021 for three tax changes: expansion of the Emissions Trading Scheme, a carbon border adjustment mechanism, and a new digital levy. These would be introduced from 2023, it was proposed.

Following meetings with representatives from the US Government and following the release of the OECD's blueprint for reform of international tax rules, the EU earlier confirmed that it had shelved discussions on a new digital levy, to allow the Commission "to focus on ensuring support for the implementation of the framework outlined on July 1 by the OECD." The OECD has said it intends to finalize its work on developing its two-pillar plan by October.

According to a new statement released by the European Parliament, MEPs have expressed their displeasure at the decision, with some telling Commissioner for Budget Johannes Hahn that the Commission is "in breach of the 2020 Interinstitutional Agreement".

According to the EU Parliament statement, "a large majority of MEPs [on the Parliament's Committee on Budgets] found that the Commission is in breach of the Interinstitutional Agreement of December 2020, which contains a legally binding roadmap towards the introduction of new own resources, according to which the Commission must put forward, by June 2021, a proposal to introduce three new own resources: a carbon border adjustment mechanism (CBAM), a digital levy and an own resource based on a reviewed Emissions Trading System (ETS)."

The Chair of the Committee on Budgets Johan Van Overtveldt said: "Parliament was disappointed when the Commission failed to present legislative proposals for new Own Resources in the first half of the year. The digital levy in the meantime has been put on ice because of the OECD negotiations and under some not too subtle pressure from the United States." Budget MEPs said without new own resources there will not be sufficient funds to repay the borrowing for the new "NextGenerationEU" recovery plan, without increasing national contributions to the EU budget or, at worst, cutting future EU budgets.

According to the statement, in a debate with Members of Parliament's Committee on Budgets, the EU Commissioner for Budget Johannes Hahn said the Commission had put on hold its work on a new digital levy as a new Own Resource for the Union budget (and as a consequence delayed the package including two other new Own Resources) in the aftermath of a long-awaited agreement on OECD/G20 level on the reform of international taxation in July. Commissioner Hahn reportedly promised MEPs that "after the G20 meeting in October we will make a proposal no matter if there is an agreement or not." He confirmed that the whole package of three new Own Resources is needed in order to generate sufficient funds.