France and Germany give OTTs early Xmas gift in digital tax saga

Europe ambitious plans to hold the internet giants accountable to fair and reasonable taxation have been temporarily scuppered after resistance from several nations, most notably France and Germany.

While Silicon Valley is still not in the clear, the internet giants will be breathing a deep sigh of relief as their hard-working lobbyists are given another couple of months to influence the plans. France and Germany seem to be the main opponents of the aggressive tax assault, drawing up their own suggestions at the G20 Summit which would allow many of the biggest players to continue to dodge the tax man.

The initial plan was relatively simple; hold the internet players accountable to fair and reasonable conditions by implementing a 3% tax on digital revenues realised in EU member states. This would have placed all the current tax dodgers on the block. The Franco-German joint declaration was supposed to be a compromise, answering the initial opposition, but it seems this watered-down version is not going far enough.

While the Franco-German version of the digital tax certainly is much diluted compared to the initial proposals, it has still been resisted by other players who are protecting their own interests. It seems the ‘all for one and one for all’ theoretical attitude of the European Union does not translate directly into Irish or Norwegian.

“Following a thorough analysis of all technical issues, the presidency put forward a compromise text containing the elements that have the most support from member states,” a statement from The European Council reads. “However, at this stage a number of delegations cannot accept the text for political reasons as a matter of principle, while a few others are not satisfied yet with some specific points in the text. That text did not gain the necessary support and was not discussed in detail.”

Unfortunately for the European Union, this is the issue with any material changes made to rules and regulations. A collection of 27 member states certainly creates influence on the global and political stage, though it only takes one detractor to spoil any plans.

Looking at the suggested middle ground, a Franco-German joint declaration made a point which will please some more than others. The objection here is down to the wording of the proposal with France and Germany believing advertising revenues should be targeted, pushing Facebook and Google into the line of fire, as opposed to digital revenues as a generic term.

In France and Germany, some of the world’s largest internet-based businesses would gain a reprieve. Should the new rules target digital advertising revenues specifically, while subscription services, hardware and online marketplaces would escape. The likes of Amazon, Apple and Spotify would be free to continue practising their suspect taxation strategies.

The pattern of affairs here is something which should be pleasing for the internet giants, or at least most of them. What started as an assault on the internet players is starting to look like a very different battle nowadays, leaning much more towards Google and Facebook specifically.

These two might feel a bit victimised, but the ways things are heading it looks like a deal which is accepted by every member state would not be the victory the Brussels bureaucrats originally envisioned. With bureaucrats under pressure to produce a plan, accepted by all member states by March 2019, a lighter touch approach will be needed. We suspect such a plan will be put together, championed as a revolutionary position, though the internet players will be given enough wiggle room to ensure there is no meaningful victory.

What will help internet players sleep at night is the knowledge they only need to get one member state on side to veto the battle plan. Rev up the lobby machine!