EU Finance Ministers Cautiously Support Push to Toughen Tech Taxes

By Natalia Drozdiak Features Dow Jones Newswires

European Union finance ministers on Saturday expressed cautious support to pursue new tax rules for technology giants like Alphabet Inc.'s Google and Facebook Inc., though they stressed it would be necessary to find a permanent, global solution that includes the U.S.

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At a meeting in Tallinn, Estonia, the bloc's finance chiefs agreed to move forward on finding better ways to tax digital services, though some ministers differed on how to proceed.

"Despite some diverging opinions, we eventually came to several common conclusions," said Toomas Tõniste, the finance minister of Estonia. "Everyone agreed that the problem exists," he said, referring to inadequate taxation of tech companies.

The push is part of the EU's latest attempt to crack down on what officials see as tax avoidance in Europe and to assure citizens that large companies are paying their fair share.

The EU is seeking to modernize corporate tax-rules, which traditionally have been designed on the basis of physical assets and where the company operates. Officials would like to account for virtual operations, such as a search engine selling targeted advertisement on the basis of data collected in a country where it has no permanent establishment.

One of the proposals discussed was a short-term plan proposed by France and backed by Germany, Italy and Spain to establish an "equalization tax" on revenue generated in Europe by digital companies. It is aimed at reflecting what they believe companies should be paying in corporate tax. The initiative has raised questions in member states about how the tax would be implemented.

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Just more than half of the bloc's 28 finance ministers backed that plan, while the majority supported seeking a long-term agreement at a global level with the Organization for Economic Cooperation and Development. The OECD is a forum of wealthy countries, which includes EU countries, Japan and the U.S. It has led efforts to reduce what is known as profit shifting.

Some countries expressed concern Saturday that new rules would in essence target four large American tech companies: Google, Facebook, Amazon.com Inc. and Apple Inc., according to a person familiar with the matter. Those countries said it would be more sensible to pursue discussions at the OECD-level.

The goal will be to reach an agreement among the 28 member states by December and then present their proposal to the OECD, Mr. Tõniste said.

The European Commission has promised to issue a legislative proposal that would be parallel to any work with the OECD. The commission plans to publish a paper outlining all options ahead of a summit of EU leaders on Sept. 29. Valdis Dombrovskis, the EU's financial-services chief, said the commission would take the equalization tax suggestion into account when drawing up its legislative proposal, which is expected to be unveiled by spring.

Under the French proposal, the tax would seek to use measures of digital presence, such as the number of users in a country, to establish the company's revenue base. That would then be taxed at a low rate designed to equal the same amount of money as if the company were paying normal corporate income tax on their profit in the country.

"There's a question of justice, but there is also a question of fiscal efficiency," said French Finance Minister Bruno Le Maire earlier Saturday. "We cannot accept that internet giants create so much value on the basis of European data, French data, German data, Italian and Spanish [data] without paying tax on that."

Austrian Finance Minister Hans Jörg Schelling said he would back the initiative for the French-led proposal as a short-term solution until there is a clear definition at OECD-level of what a digital permanent establishment entails.

The EU has struggled for years to close tax loopholes because all of its member countries, including low-tax jurisdictions like Ireland and higher ones like Germany, must agree unanimously on tax matters.

Luxembourg Finance Minister Pierre Gramegna expressed skepticism about the proposal to tax company revenue. He said this could lead to taxing companies that aren't posting profits.

Sam Schechner in Paris contributed to this article.

Write to Natalia Drozdiak at natalia.drozdiak@wsj.com

(END) Dow Jones Newswires

September 16, 2017 08:11 ET (12:11 GMT)