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EU nations divided over digital tax plan, with fears of US retaliation

Tim Maytom

EU governments are reportedly divided over a plan to tax big internet firms like Google and Facebook on their revenues, and are worried about retaliation from the US, according to top officials.

Under a proposal from the EU's executive Commission in March, EU states would be able to charge a three per cent levy on the digital revenues of large firms, many of which are often accused of averting tax by routing their revenues and profits through low-tax states. The plan requires all 28 states to approve the measure, but a large number currently oppose it, worried about the technical complexity of the process and that the US, where most of the firms are headquartered, would retaliate with changes to its own tax structure.

The Commission's efforts to ensure that internet companies pay adequate taxes is running in parallel with a study by the Organisation for Economic Cooperation and Development, which is seeking a multi-lateral approach.

"It is very difficult to see an agreement on the digital tax because so many technical issues are not solved yet," said Danish Finance Minister Kristian Jensen, speaking to reporters on the sidelines of a meeting of EU finance ministers.

Jensen added that the "there will be a reaction from the US" and warned that the tax was "not a good idea for Europe". Several other diplomats, including those from Ireland, Malta, Germany and Sweden, echoed the sentiments. France, which has been one of the main proponents of the tax, has suggested a sunset clause to ensure that the measure is put into place soon, but allow time for it to be updated once the OECD's findings are reported.

"There must be the adoption of a directive on digital taxation by the end of the year," said Finance Minister Bruno Le Maire. "There will be the question of implementation of the directive. We are open on that question, because we know there is work done by the OECD."

A second option, which is in line with current OECD guidance, would see tax rules revised so that levies could be imposed on companies based on their 'digital presence' in a given state. However, this option will take longer to be applied, and would be considerably more complex.

A similar 'digital services tax' was proposed in the most recent UK budget, with plans to introduce it in 2020 following a consultation with leaders in the digital and internet industries.