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France dials down EU tech tax to push through a deal

France dials down EU tech tax to push through a deal

The Franco-German engine has struck again and this time it’s ruffled some feathers. In a last-ditch attempt to strike a deal on an EU-wide tech tax for Emmanuel Macron, Paris and Berlin’s finance ministries have hatched an eleventh hour version of a “digital services tax” that dials down the ambition but will ramp up the pressure on resisters to finally swallow the idea.

The FT on Monday night reported on a sparse one-page Franco-German plan that will be sent round to EU finance ministers this Tuesday morning when they gather to discuss contentious plans for reviving talks about an EU tech tax.

The most striking part of the Franco-German compromise is its narrow target. Instead of an original plan that would have captured around 180 of the largest tech giants, the new version wants a 3 per cent levy designed only to target companies which sell digital ads.

In practice, that means Google and Facebook will be the big beasts captured by any EU only measure. The two US giants dominate 75 per cent of digital advertising space. Amazon, Airbnb and Apple are likely to all get a reprieve if the Franco-German plan sees the light of day.

Whether it will is still an open question. EU diplomats on Monday grumbled about being ambushed by the Franco-German plan late into an evening where finance ministers were locked away in a room for marathon discussions over reforming the eurozone.

But the two ideas are linked: in return for securing a deal to create a euro-area budget, officials said Paris had accepted a watered down tax plan. Macron is determined to show progress before next year’s pan-EU elections.

“This is all about optics for the French,” said one official, noting that the new idea helps Paris snatch victory from the jaws of what looked like a near certain defeat. Sceptical member states were ready to kill the more ambitious tax idea at Tuesday’s finance ministers meeting.

In a now familiar turn for the Franco-German partnership, Germany has once again proven a reluctant backer for one of Mr Macron’s blockbuster policies. Berlin was unenthusiastic about a European digital levy, fearing retaliation from Donald Trump and at worst, a tax that could hit German “smart” carmakers.

But bouncing other sceptics into accepting the plan is unlikely to be straightforward. Expect traditional critics such as the Nordics, Irish, and Luxembourgers to raise more questions about the merits of the Franco-German idea later on Tuesday (it will all be streamed live).

The narrower scope means less cash. An original European Commission draft, which has been the basis for vexed talks for over six months, planned to generate up to €5bn a year. At best, officials think the new pared back version might collect half of this. Critics think the cost of setting up the levy at national level might be as much as the tax revenue raised.

Paris wants unanimous agreement from the EU27 by March 2019. The EU tax would only be applied in 2021 if international rules on taxing tech giants aren’t agreed at the OECD. If it ever does come into force, it would have to expire by 2025. It’s a subject that will be taxing the EU for a long while yet.