Digital sales tax poses potentially costly dilemma for State

The Government is in a tricky position on the proposed new digital sales tax, championed by the European Commission with strong French backing. The concept is to have a tax on the revenues from some digital activities, levied in the markets where users are located. It is intended as an interim measure, until more long-term proposals are agreed.

This would cost the Irish exchequer, as less profit would fall to be taxed at the European headquarters of these companies, many of which are based here. Initial Revenue Commissioners estimates were that the tax could cost the exchequer some €160 million a year.

Like all other countries, Ireland has a veto on taxation matters. However, a veto is a weapon the Government would only want to use sparingly. While no link has been made at the level of EU negotiations between the tax agenda and the support for Ireland over the Border issue in the Brexit talks, this is nonetheless part of the context.

Time limit

So too will be whether other countries also object – Ireland will watch Sweden, in particular, while other small states such as Malta and Luxembourg also have concerns.

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The original plan was to levy the tax at 3 per cent on revenues earned by major players from online advertising, digital intermediation and the sale of user data, though there are suggestions that the last could be excluded. A time limit is also being proposed on the tax to try to assuage concerns.

Ireland has argued that it is better to wait for multilateral OECD moves and that the proposed new sales levy involves a new and possibly discriminatory mode of taxation. A key part of the complication is that a number of member states – as many as 11, according to reports – are planning to introduce national digital sales taxes if the EU does not move, or have done so already. Such unilateral measures would also hit Irish revenues.

The EU’s argument is that it would be better for Ireland to sign up to something it has a say in. However, the Government here will have an eye, too, to the longer-term implications of this for more-reaching EU plans in the digital area, and a separate plan to establish a common corporate tax base in the EU.