Germany joins European Commission in call for digital tax

(L-R) Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, Taxation and Customs, and German Minister of Finance Olaf Scholz chat prior to the start of an Eurogroup Finance Ministers' meeting at the European Council in Brussels, Belgium, 24 May 2018. EPA-EFE/STEPHANIE LECOCQ

Germany joins European Commission in call for digital tax


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German Finance Minister Olaf Scholz wants to end the global race to the bottom when it comes to corporate taxation as Germany’s main focus is tax avoidance.

Jointly with France, Scholz is planning for an international pushback on tax avoidance, aiming particularly against US-based behemoths, including Amazon, Apple, and Google.

The problem with the EU’s tax model is that such companies pay taxes in the countries were they register rather than where economic activity takes place. This status quo favours low-tax destinations, including Ireland but also the Netherlands, were intellectual rights dividends are tax-free, while France, Italy, Germany, and the UK lose millions of euros each year – a trend that Scholz wants to reverse.

Germany is working together with France to push for a framework agreement that would engage all developed economies. The focus is the consent of the Paris-based Organisation for Economic Co-operation & Development.

Berlin will now join the European Commission call for a harmonisation of the tax rates across Europe, combined with measures to avoid moving money to tax heavens.

“We need a worldwide minimum tax level that no state may go below,” Scholz told Welt am Sonntag.

European Economic Affairs Commissioner Pierre Moscovici has made it clear that the European Commission is also pushing for a systemic overhaul that will move from a method based on corporate residence to taxing economic activity, irrespectively of where the company is located.

According to Moscovici, the Commission is planning for an EU-wide taxation initiative before January, when the political agenda will be dominated by Brexit in March and European Elections to be held later in May.

Germany and France are pushing for resolute action, but Ireland, the Czech Republic, Sweden and Finland are raising objections. Introducing the law would require a consensus amongst the EU Member States.

The European Commission is proposing a 3% tax on the revenues of internet companies with global annual profits that exceed €750 million. This would ensure additional revenue for the EU without completely eroding the concept of tax competition.

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