EU delays push for digital levy to focus on global tax deal

People wearing protective face masks walk outside the headquarters of the European Commission, on Feb 9, 2021 in Brussels, following heavy snow fall over Belgium.

The European Union (EU) said Monday that it would postpone its push for a controversial digital levy to focus on a negotiation over a broader minimum global tax deal struck by the world’s largest economies.

The US has lobbied against the levy on digital sales that was likely to hit Silicon Valley giants’ business in Europe. The EU had pledged to introduce a levy if there was no progress on a more sweeping effort to tax corporations more uniformly. Such a pact now seems more likely after the Group of 20 (G20) endorsed the principles of a global-tax agreement.

Delaying the EU plan will “allow us to be concentrated working hand in hand to achieve the last mile of this historical agreement,” said EU Economy Commissioner Paolo Gentiloni

Taxation is a hot topic in Europe with officials in Berlin and Paris taking aim at complicated structures used by multinationals, many of them American, that allow them to reduce their effective tax rates.

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EU Economy Commissioner Paolo Gentiloni said he’d already told US Treasury Secretary Janet Yellen “of our decision to put on hold the proposal of the commission of a digital levy.” Delaying the EU plan will “allow us to be concentrated working hand in hand to achieve the last mile of this historical agreement”

German Finance Minister Olaf Scholz said the EU would now discuss how to put the global deal in place. Moving away from the levy “is also a sign that we are now really making the progress to get a global agreement,” he added.

Yellen, who is meeting with EU officials in Brussels on Monday, had warned Sunday against “taxes that are discriminatory against U.S. firms.” She declined to comment specifically on the EU move.

The European Commission, the EU’s executive arm, had already delayed the rollout of the plan amid pressure to withdraw it or show that it’s compatible with the global effort on how and where to tax the profits of multinational companies.

The EU will reassess its tax plan in the autumn, which is the deadline for progress on the global tax deal, said EU spokesman Daniel Ferrie.

G20 deal

Over the weekend, G20 nations agreed on the outlines of a global corporate-tax agreement. The deal is designed to stop major corporations from moving to low-tax jurisdictions and to establish a fairer system for distributing the taxation rights on multinationals, based on where they operate instead of where they are headquartered.

READ MORE: G20 finance ministers back tax deal, vow to clear hurdles

The latter component also includes an agreement to end so-called digital services taxes that several European countries have implemented to target the revenues of large tech companies like Facebook Inc. and Alphabet Inc.’s Google.

The tax agreement doesn’t have the backing of all EU nations, with Ireland, Hungary and Estonia so far refusing to back it. Ireland, which has one of the EU’s lowest corporate tax rates, is the European base for many US tech giants, including Apple Inc., Facebook and Google.

Yellen was set to meet with the euro-area finance ministers collectively Monday, and was also set to have separate meetings with European Central Bank President Christine Lagarde, European Commission President Ursula von der Leyen and EU trade chief Valdis Dombrovskis, among others.