Donohoe challenges European Union digital tax plan

Paschal Donohoe and other EU finance ministers have sharply criticised EU finance commissioner Pierre Moscovici, as tensions rise before next week's bid by the European Commission to levy a digital tax on major internet companies.

The Minister for Finance and other EU colleagues rounded on Mr Moscovici at a meeting in Brussels yesterday after the finance commissioner accused seven countries of tax policies which undermined the single market.

The finance ministers of Belgium, Luxembourg, Cyprus, Hungary, Malta and the Netherlands joined Mr Donohoe in rejecting Mr Moscovici's charges , criticising them as "unhelpful" and "unfair".

Honoured all pledges

Mr Donohoe said the tax references to Ireland were unfair, as Ireland had honoured all pledges to bring EU and the Organisation for Economic Co-Operation and Development legislation into force.

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But the clash highlights EU divisions on taxation a week before the commission issues its long awaited proposals on a new tax on digital and internet companies. The commission and the larger member states including France and Germany support the measure, while Ireland and several other smaller states oppose it.

The commission will propose as an interim measure a tax on digital revenues, rather than profits, a radical step that is sure to be opposed by Ireland and some other member states.

Positive role

EU leaders are to discuss the proposal at a summit next week, with Mr Moscovici saying he expects Ireland to pay a positive role in the negotiations, despite its reservations.

Europe must "act fast" to secure a common approach to digital tax, Mr Moscovici said yesterday, adding that "the tax system we have today is based on an economy we don't have any more".

The commission wants the tax on revenues introduced quickly as it says international tax reforms will take a long time to agree and implement.

Commission sources argue that Ireland cannot credibly keep saying “no” to reforms in this area, though Ireland argues that it has adjusted tax rules in recent years.

Tax changes must be agreed by unanimity, meaning Ireland could chose to veto any plans.

“The commission has accepted that this is a relatively unscientific tax grab, pending a more evidence-based analysis by the OECD “ said Feargal O’Rourke, managing partner of tax consultancy PWC.

“This will cost the Irish exchequer tax revenues so it will be interesting to see whether we invoke our veto,” he said.

The EU's interim proposal could lead to "to double taxation, uncertainty and disputes," warned Cora O'Brien, head of policy at the Irish Tax Institute. "There is also a view that any temporary tax measures can be difficult to reverse."