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This story is part of the special report In Search of Sovereignty, on Europe's effort to support domestic technology.
As Europe strives to assert its technological sovereignty, few issues have loomed as large as the taxation of digital giants such as Google, Facebook and Amazon.
But despite the support of French President Emmanuel Macron and German Chancellor Angela Merkel, the prospect of a Europe-wide digital tax is quickly disappearing into the long grass.
Hard-line advocates of the tax, like France, have agreed to pause its application under direct threat of sanctions from the United States. Lukewarm supporters of an EU-wide deal, like Germany, have proved happy to defer to the Organization for Economic Cooperation and Development for a global agreement that may never materialize.
The fact that Europe's digital tax has gone from hot topic — avidly embraced by France and a majority of EU countries — to a quasi-taboo in two years offers a cautionary tale on the limits of Europe's ability to impose technological sovereignty via taxation.
Talk of a global digital tax deal bubbled on policymakers’ back burners for years — until France turned up the heat by unilaterally introducing a 3 percent tax targeting the revenues of U.S. tech giants.
Paris was quickly forced to row the proposal back. Under pressure from U.S. President Donald Trump, who threatened to impose tariffs on French wines and other local producers, French Finance Minister Bruno Le Maire announced in January that implementation of the tax would be pushed back, from April 2020 to “the end of December.”
Since France’s move, Spain, Italy, the U.K., Austria and the Czech Republic have introduced digital taxes of their own, but none is expected to come into effect before the end of the year.
“The Europeans were keen on taxing American digital companies, but not that keen in seeing their companies taxed elsewhere,” said Pascal Saint-Amans, the OECD’s director of tax policy.
Among the reasons for the French delay was to give the OECD time to come up with a global agreement that would render local tax unnecessary. But the process there is looking increasingly unlikely to produce a deal before the end of the year.
First, the coronavirus pandemic blew up the original timeline. Then, in a June letter from U.S. Treasury Secretary Steven Mnuchin, the U.S. requested a “pause” in the talks until after its presidential election in November.
The proposal under discussion at the OECD consists of two pillars. The first, aimed at ensuring digital companies are taxed in the places where they generate profit, is ferociously opposed by Washington, which argues that it would discriminate against U.S. tech companies.
The second would set a global minimum corporate tax rate.
In an effort to keep the U.S. at the negotiating table, the OECD has suggested finding a deal on pillar two, and fine-tuning pillar one next year.
EU countries are divided over whether to embrace the proposal. Some countries, including France and Ireland, want to keep both pillars of the global tax deal together. Others, such as Germany, are willing to move ahead with pillar two first.
Germany argues that a global minimum tax rate would ensure multinationals, including digital businesses, pay a fair share of tax. Germany will “work for a broad consensus on pillar two within the agreed timetable,” a spokesperson for the German finance ministry said.
For the moment, the European Commission, which is representing the EU at the OECD, says it wants to keep the global tax deal as a package that includes both pillars, as it sees this as the only way to ensure all EU countries support the deal.
Benjamin Angel, the director of the Commission’s tax department, said that European countries will have to accept that the OECD will not get a deal this year.
With the process all but stalled at the OECD, France has sought to up the pressure by renewing talk of an EU-wide digital tax — counting on support from countries hard-hit by the pandemic.
“The situation has changed with the coronavirus crisis”, a French official said. “Every country needs money, and in the end this issue is about fairness.”
Despite the French push, it’s still very much an open question whether the EU will be willing to pay the required price.
The Commission has suggested introducing an EU-wide digital tax by 2023 at “the latest,” but it has also warned of technical difficulties and the risk of retaliation by the U.S. should the bloc move forward on its own.
In mid-July, the Trump administration announced it would slap a 25 percent tariff on $1.3 billion worth of French goods in retaliation for the country’s digital services tax but not implement them for up to six months.
And while November could see the election of a new, more Euro-friendly administration, the OECD’s Saint-Amans says he does not thing a Joe Biden presidency would take a very different stance on digital tax.
“Europeans underestimate how bipartisan the U.S. position is,” he said. “You cannot attack U.S. tech companies.”
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