EU Struggles to Find Unity on OECD’s Global Tax Rewrite

The EU is trying to find agreement among its members on how to take a united position on the OECD’s plan to tax the digital economy.

“Most EU member states are supportive of adopting an EU position for the OECD plan,” an EU diplomat told Bloomberg Tax. “But there are others that are reluctant and this has made it difficult. I do not expect this to change.”

The Organziation for Economic Cooperation and Development wants to get more than 130 countries to agree to address concerns that tech giants, in particular, aren’t paying enough tax or not paying it in some countries where they have a large user base.

The OECD effort could replace the unilateral plans some countries are pursuing to tax tech giants such as Alphabet Inc.'s Google and Facebook Inc. France approved a 3% tax on digital revenue in July that sparked U.S. trade threats.

EU officials hope a united stand will help strengthen the bloc’s position before a final plan is agreed to in June 2020. Agreement on the OECD plan would “shape the needs of EU member states and preserve the integrity of the EU single market,” European Taxation Commissioner Pierre Moscovici said earlier this year.

But so far European Union presidency holder Finland has been unable to get the 27 countries to agree to back the OECD’ s Oct. 9 proposal, according to the EU diplomat. The OECD wants to reallocate a greater portion of multinationals’ taxable profits to countries where they have consumers and create a global minimum corporate tax rate.

The reluctant countries include Ireland and Sweden, both of which opposed an EU-level digital services tax proposal targeting large companies, the diplomat said. That proposal was put on hold while the OECD pursued its plan.

Daniel Holmberg, Swedish government spokesman in Brussels, declined to comment. A spokesperson for the Irish Finance Ministry said the country is engaged in OECD discussions and is “seeking a consensual solution to tax issues arising from the digitalization of the economy.”

Profit Allocation

EU member states have raised concerns about the OECD’s profit reallocation proposal, including questions about the new nexus criteria, the scope of taxpayers affected, and exemptions from the proposal, according to a confidential Finnish presidency document obtained by Bloomberg Tax. The document will be the basis for a Nov. 8 EU finance ministers’ debate on the OECD’s digital tax blueprint in Brussels.

Many member countries want to look at whether the minimum corporate tax would be compatible with EU law, according to the document.

Finland hopes to get agreement Nov. 8 to complete a legal analyses and get countries to agree to certain elements of the EU’s plan by the end of the year, according to the document.

“The elements at this stage are undefined,’' the EU diplomat said.

A lack of a united EU position at the OECD could have its advantages, said Howard Liebman, a Brussels-based international tax lawyer with Jones Day.

“Obviously any comments submitted by the EU will carry significant weight in the OECD’s deliberations,’' Liebman said. But, he added, the EU could gain significant leverage if it rallied around some key points that EU member states submitted individually but with minor differences among them. “In that case, it would serve them well if 27 countries made the common points instead of just one.”

Pascal Saint-Amans, director of the OECD’s Center for Tax Policy and Administration, told reporters Oct. 17 that once there’s agreement on details of the proposal, work can begin on implementation.