Vestager Recommends Digital Tax To Fund EU Recovery Plan

A digital tax would help the European Union raise its own money to assist the rebuilding of the European economy after the sharp downturn caused by the novel coronavirus pandemic, Margrethe Vestager, the bloc's competition commissioner, said Tuesday.

Vestager told a French parliamentary committee that while she hopes negotiations at the Organization for Economic Cooperation and Development will produce a global agreement on a digital tax, the EU would be willing to move ahead with its own tax should the OECD process fail.

In late May, the European Commission, the EU's executive arm, announced a €750 billion ($845 billion) recovery fund.  The fund would consist of €500 billion in grants and €250 billion in loans to help stricken regions in the EU rebuild their economies without having to borrow extensively. One way the commission has proposed financing the fund is through a digital tax that would go into the EU's coffers.

"It is important to develop your own resources, and digital taxation is a good candidate," Vestager said, according to a French simultaneous translation of her remarks, which were delivered at the webcast hearing.

"I hope we will find a consensus within the OECD or we will push, as Ursula von der Leyen has already indicated, toward a European model," Vestager added, referring to the commission's president.

Companies are active in Europe because they make profits there, and digital companies have to pay taxes, Vestager said. The point of the tax isn't to stop innovation but "to ensure that when there are a lot of benefits, that they are taxed where the activity is carried out."

The commission didn't reply to a request to comment on Vestager's remarks.

The EU tried to introduce a digital tax in 2018, but it failed to get the unanimous approval needed for the measure to become law. Since then, the focus has shifted to finding an international deal at the OECD level by the end of the year.

However, there is some concern that the United States government's desire for any reallocation of taxing rights to be made optional is making it difficult to reach an agreement.

Paolo Gentiloni, the EU tax commissioner, said last week that finding an international agreement on digital taxation and a minimum tax by the end of the year wouldn't be easy. The EU will make its own proposal if there isn't a global agreement by the end of the year, Gentiloni said.

The commission's plan for a recovery fund is by no means a done deal, because all 27 EU countries must agree to it. Last week, the Netherlands, one of the most outspoken countries in favor of frugal budgets, said it remains reluctant to introduce new sources of funding for the EU. It also questioned the size of the recovery fund.

--Editing by Neil Cohen.

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