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Law360 (July 7, 2020, 1:20 PM EDT) -- A floated new tax on large companies would raise the cost of doing business and undermine the European Union's recovery from the coronavirus pandemic crisis, a German business group said in a report Tuesday.
A German business group urged the EU to reject digital and plastic taxes along with additional proposed carbon levies and a possible charge on large corporations. (AP)
The BDI urged the EU to reject digital and plastic taxes along with additional proposed carbon levies and a possible charge on large corporations.
"An additional burden on citizens and companies would run contrary to the economic recovery of Europe and raise the costs for business activities," the report said. "This should be prevented at this time to secure a quick economic recovery."
The comments came just days ahead of a key meeting of European Union leaders scheduled for July 17. The group hopes to agree on a plan to allow the European Commission to borrow €750 billion ($847 billion) for a recovery fund to help struggling parts of the continent recover from the coronavirus crisis. For the first time in months, leaders plan to meet in person rather than by teleconference.
Countries will have to sign off on the plan unanimously, and some skepticism about the plan remains in smaller, northern countries, despite strong support from France, Germany and the European Commission.
Separately Tuesday, the commission announced that the economic drop precipitated by pandemic-related shutdowns will be worse than was expected two months ago. The 27-nation bloc's economy will shrink by 8.3% this year, worse than the 7.4% projected in May, the commission said.
In late May, to help raise money to finance the recovery fund, the commission, the EU's executive arm, proposed a recovery fund that would be two-thirds grants and one-third loans. To help give the commission more funds to repay investors, the commission proposed new taxes, such as a digital tax and a thinly worded tax on large companies. The digital tax would bring in about €1 billion per year, the company tax about €10 billion.
A commission representative told Law360 the levy on companies would enter into force only when the crisis was over. A BDI representative, however, said this is irrelevant.
"Any additional tax burden in Europe is harmful for companies, even after the crisis," Monika Wünnemann, the department head for tax and financial policy at BDI, told Law360.
Countries outside Europe, such as China and the United States, are promoting investment via tax cuts, making competition tougher for Europe, she said.
"That is why Europe must not permanently burden companies with new taxes," Wünnemann said. "Otherwise they will shift their locations [for production and sales] more and more" outside Europe.
The EU's budget commissioner, Johannes Hahn, defended the company levy and the digital tax Tuesday. Speaking at a webinar organized by the Bruegel research group, Hahn said that when companies that use the EU's single market — which allows them to sell to a large market without borders — are compared with smaller companies that may be more focused on an individual market, charging a levy on the large companies is an "issue of fairness."
He also said a digital tax would make sense as a way to compensate for differences in outcomes during the pandemic, during which bricks-and-mortar shops have closed while digital companies have largely prospered. International companies can also "use in a more flexible way the best possible taxation schemes," he said.
On a separate matter, the BDI pushed for a list of approved tax arrangements that wouldn't need to be registered with the authorities. This was in response to an EU law, which entered into effect on July 1, that requires tax professionals to disclose cross-border arrangements. Though the EU's council of member states said last month that countries could delay the implementation of the law, known as DAC6, by six months, Germany decided to have its law enter into force as planned on July 1.
The commission didn't immediately respond to a request for comment on the BDI proposal.
--Editing by Robert Rudinger.
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