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Luxembourg's government caves on digital tax

Luxembourg's government caves on digital tax

by Bill Wirtz 3 min. 08.10.2018 From our online archive
The Grand Duchy government is very wrong in its position on the taxation of digital companies, argues Bill Wirtz
French finance minister Bruno Le Maire Photo: AFP
French finance minister Bruno Le Maire Photo: AFP

The Grand Duchy government is very wrong in its position on the taxation of digital companies, argues Bill Wirtz

So, Macron won.

That should be the essential takeaway from the Luxembourgish government's U-turn on digital taxation. Last month, finance minister Pierre Gramegna announced that the government would not hold back the introduction of a French-proposed tax on "digital presence", provided it contains a sunset clause making it temporary – until a solution can be found at the level of the Organisation for Economic Co-operation and Development (OECD). The government's initial proposal was to wait until a solution could be found together with countries such as the US.

French finance minister Bruno Le Maire began his move towards what was then known as a "digital tax" in the autumn of last year. Le Maire had run a centre-right primary campaign for France's Republican party as a fiscal conservative but seems to have found the social democrat within himself since he joined Macron's government.

Describing it as a matter of "fairness", Le Maire has called for European unity on this issue. During the Estonian presidency of the European Union, he gathered finance ministers to gain support for the proposal.

However, ministers from Denmark, Sweden, Malta and Ireland quickly showed opposition. Some critics argued the move could be seen as a punishment of US firms, as most companies affected would be American.

Luxembourg has seemingly abandoned the camp of those opposing the further taxation of companies on the European level, sucking up to French president Emmanuel Macron. Considering the French president holds considerable negotiating powers, particularly for EU top jobs, one can only wonder where a sudden reversal might have arisen from.

Le Maire now seems confident an agreement can be found by the end of the year.

A sense of envy

The introduction of such a tax would be unwise, both economically and politically. The administration of US president Donald Trump will see a digital tax on US companies such as Google, Facebook, Amazon and Apple as further evidence for EU protectionism. And no wonder: EU leaders continuously bemoan the fact there are no European versions of these tech giants, and Trump will correctly identify a sense of envy in this proposal.

The reason why there is no European Silicon Valley, however, isn't because we are taxing them too little but rather because we're already taxing them too much. The US is a safe-haven for technological creation because it guarantees relative economic freedom. But in Europe, we don't embrace innovators: we overtax and over-regulate them.

If Brussels were sincere in its promise of attracting the innovators of the future, it would lower market-entry barriers by encouraging states to lower regulatory burdens such as operational licenses, and lower taxes such as corporate income tax and value added tax.

Take the example of Uber. The $15-billion (€13 billion) company started in the US and is able to provide a good and affordable product to consumers. In Europe, on the other hand, states are doing their best to keep Uber off the market to satisfy the lobbyists sent by decade-old taxi companies. As a result, neither employees nor consumers benefit.

In reality, the digital tax is a mere political promise of what is a left-wing government in France and a way of generating even more revenue for states that are already overspending. The EU claims it could raise €5 billion a year – another €5 billion, not spent by those companies on innovative new products but instead sunk into the vast bureaucracies of Paris, Brussels or here at home.

If Pierre Gramegna and Xavier Bettel really wanted to represent this country well in Brussels, they would argue for the importance of tax competition, and against the big government behemoth that France is trying to export to the EU.

Bill Wirtz is a political commentator from Luxembourg, based in Brussels. He has published in Le Monde, Le Figaro, Die Welt and The Times of London.