MEPs press EU to engage fully in international efforts to tax the digital economy, while still being prepared to act at EU level if global plans fail.

As international talks at OECD level on taxation systems for the digital economy entered a new phase in October, MEPs quizzed the Commission on its strategy on Monday and adopted a resolution on Wednesday with 479 votes in favour, 141 against and 69 abstentions.

If international negotiations fail, the EU should go it alone

In the resolution, MEPs express their concern that there is no common approach at EU level on the ongoing international negotiations and call on the Commission and member states to agree on a joint and ambitious EU position, while making their own positions publicly known. The Parliament supports Commission President Ursula von der Leyen’s commitment to propose an EU solution, should an international deal not be reached by the end of 2020.

MEPs say that at international level, the EU’s position should aim to ensure that the Single Market functions smoothly, notably by safeguarding a level playing field for all types of firms. They demand that firms pay a fair share of tax where the actual economic activity and value creation take place and that the income from taxes is fairly distributed across all the member states.

Following the financial crisis, the G20 addressed tax evasion, tax avoidance and money laundering through the Base Erosion and Profit Shifting (BEPS) project, leading to the BEPS action plan. This action plan, however, did not address the detrimental practices existing in the digitalised economy and this led to further work being set up under BEPS in 2015 (BEPS Action 1 Report). In October and November 2019, the OECD launched two separate public consultations on the matter, aiming to find consensus on a way forward.

In 2018/2019, the EU came close to adopting its own set of rules (legislation on a digital services tax, and legislation defining a significant digital presence), however, the need for unanimity within the Council meant that a few member states were able to prevent a deal being reached.

S&Ds accuse conservatives and liberals

The Tinagli report on ‘Digital taxation and the ongoing reforms in the framework of the G20 and OECD (BEPS 2.0)’ is an important building block for a fair taxation system the S&Ds say. However, a coalition of conservatives and liberals rejected an amendment introduced by the Socialists and Democrats, which called for an EU- wide 18% minimum effective tax rate.

“Today the EPP have again shown their true colours: they are protecting the interests of big multinational companies. By voting down one of the most effective tools to crack down on tax avoidance – an effective minimum tax rate of 18%, they are allowing big corporations to get away with paying almost zero taxes. As digital value creation does not require a physical presence – a principle on which our current tax laws are based – a minimum tax rate will be a big step towards better dealing with the digitalisation of the economy. The EPP will have to explain to citizens why they are left to pick up the unpaid tax bill of big multinationals,” said Jonás Fernández, S&D MEP and spokesperson on economic affairs.

“It’s time we bring tax law into the digital age. We want to ensure that big companies pay their fair share of tax where the value is created and where the economic activity is taking place.  With easy to implement rules we want to limit tax competition and guarantee a level playing field between companies.  All digital multinational companies – with an active engagement and interaction with customers and users – should be included.  We call for an ambitious international tax reform. But, one thing is clear: If no agreement can be reached by the end of 2020 at OECD level, the EU must be willing to act alone. Our citizens’ call for tax justice can no longer wait,” added Irene Tinagli, S&D MEP and author of the report.