EU Tax Chief Sees Possible Growing Need For Digital Levy

The commissioner for taxation in the European Union suggested Monday that there was a growing need for a tax on digital companies amid the coronavirus crisis, noting his task was to propose one in the EU if global efforts failed.

Paolo Gentiloni told a webcast event jointly organized by the research group Bruegel and the Financial Times newspaper that he wanted EU countries to put aside previous differences and work together quickly to agree on a common economic plan to reboot the EU's economy when the crisis is over.

"What is clear from the EU point of view is that we need a digital taxation, and we are now working to have it at the global level, which should be the best way to avoid double taxation," Gentiloni said. "And we need also a minimum taxation, which is also in discussion at the global level."

Gentiloni, a former prime minister of Italy, said part of his task as tax commissioner is to propose a European digital tax should there be a lack of international agreement by the end of this year. Though he said that one needed to consider the state of EU economies next year, "the need to have this is not diminished in these terrible weeks; I could even say it is augmenting." He did not go into more detail.  

The Paris-based Organization for Economic Cooperation and Development is leading an effort of nearly 140 countries to agree on comprehensive reform of corporate taxation by the end of the year.

Despite calls from multiple business groups to slow the process in light of the economic disruption caused by the coronavirus pandemic, the OECD is, for now, sticking to the goal of reaching a deal by the end of the year. One part of the reform would involve changing corporate tax rules to allow countries with many digital customers to tax companies, even if the companies don't have a taxable physical presence. The second part would involve a global minimum corporate tax.

Gentiloni recalled that about six weeks ago he and other finance officials were in Saudi Arabia for a meeting of the G-20 group of industrial and developing countries discussing corporate tax reform, just as Europe was beginning to become aware of the coronavirus' spread onto the continent. Since then, he said, discussion of the topic has been largely frozen.

He said there remained a plan to have the basis for a deal on digital taxation at a meeting of top tax officials from the countries involved that is still due to take place in early July in Berlin.

"We are not yet there," he said, but added to the event's moderator, "I think you are right, saying that this crisis is probably stressing even more the importance of this tool."

The wide-ranging limits on public movement, unprecedented in peacetime, that governments around the world have enacted to stop the spread of the coronavirus bode well for digital companies that provide videoconferencing or streaming services, while at the same time the rules are having a murderous effect on traditional companies. Though Gentiloni didn't discuss the issue in much detail, advocates for higher taxes on digital companies say their relative success during the coronavirus crisis adds further justification for raising their tax burden.

Gentiloni, who is also the EU's economics commissioner, was speaking one day ahead of a key meeting of EU finance ministers who will discuss possible approaches for a common EU response to rebuilding Europe's economy from the depths of the coronavirus crisis.

He said that whatever was agreed to needed to be in place soon. He noted that the U.S.-backed Marshall Plan, which helped rebuild Europe after World War II, wasn't floated until two years after the war ended.

"We don't have two years," he said. "The relaunch and convergence, if possible, of the European economy needs to be addressed in the next weeks and months, not the next years."

--Editing by Robert Rudinger.

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