EU Member States still divided on Digital Services Tax proposal


On 6 November, the EU28 Finance Ministers (ECOFIN Council) discussed the Digital Services Tax. The Commission’s proposal to levy a 3% tax on revenues resulting from certain digital services. The Austrian Presidency of the EU Council asked the delegations of Member States to give their position on two issues. First, whether the scope should cover all three taxable services (targeted advertising, multi-sided digital interfaces and sale of user data) or whether the sale of user data should be excluded. Second, whether the Directive should have a fixed expiry date upon which the DST expires automatically or whether the temporary application of the DST should be linked in a different way to developments at G20/OECD level (sunset clause).

Sweden, Denmark and Ireland expressed their firm opposition to the DST proposal. In particular, Sweden said that taxing revenues rather than profits would hamper innovation, investment and growth in the EU, and added that the tax on platforms will end up being paid by small businesses. It criticized the fact that the proposal assumes that users create all the values in digital companies. This would benefit countries with large populations at the expense of countries with innovative digital business. Denmark is not convinced that the legal issues concerning the double taxation agreements had been thoroughly examined. Denmark stated that the legislators should also take into account the worries of the European businesses, which had expressed concerns about the proposal. Ireland said that the proposal would result in tax incidence being levied at the point where consumption occurs. This would set a precedent that would have many consequences for small and open economies. It would also create consequences for the EU as it was on the whole a net exporter. They questioned what the reaction would be from the EU if this was a model that was imposed on it, and what the reaction would be if this model of taxation also shifted into the broader services economy.

During the ECOFIN meeting, Germany said that it is committed to implement the OECD proposal into European law. At the same time, a revised Commission proposal on the taxation of digital services should be the way forward in case a global consensus could not be reached by the summer of 2020. They invited the Commission to further develop their DST Proposal and present it in due time. Such proposal should target certain business models and not include the sales of user data in order not to hinder the internet of things. However, the German newspaper Der Spiegel has recently reported that German Minister Scholz has come out in support of the EU DST plans, making the German position less ambiguous. EurActiv reported on 13 November that French Minister Le Maire said that a deal is ‘close’, despite fierce opposition recently shown at the last ECOFIN meeting, when Ireland, Sweden and Denmark all took a hostile stance against the proposal.

At the ECOFIN meeting, France stated that it was ready to include a clause stating that the DST would enter into force in 2020, only if the OECD was unable to provide a solution by this date (sunrise clause). It stressed that such a provision would provide a leverage for accelerating OECD’s work on digital and minimal taxation. Ahead of the ECOFIN Council of 6 November, Ecommerce Europe sent a letter to the EU28 Finance Ministers outlining its position on the proposed Digital Services Tax (DST). While continuing opposing unilateral measures, the letter also warns EU Ministers that the current DST proposal does not provide for safe harbors for low-margin or loss-making businesses, and it conflicts with bilateral tax treaties. The letter also refers to the UK DST proposal, which does provide for safe harbor provisions. Ecommerce Europe called on the Ministers to put these issues on the table for discussion.