(Handelsblatt) -- Germany's finance minister has proposed introducing a standard to combat tax avoidance – and serve as a replacement for the EU's planned digital tax.
Finance Minister Olaf Scholz is going international. Earlier this week, he floated a proposal for a European Union fund to aid national unemployment insurance schemes. And now sources tell Handelsblatt he has outlined a plan for a minimum corporate tax rate across all industrialized countries.
The latest idea is Mr. Scholz’s response to calls for a special tax on Google and Facebook. The EU is annoyed that the US digital giants pay virtually no tax on their business activities in Europe and has launched a number of initiatives to remedy that situation.
A digital sales tax, also known as the Google tax or Facebook tax, is winding its way through the EU legislative machinery, designed to impose a levy on revenue from the sale of customer data. Meanwhile, the European Parliament last month approved a plan requiring news aggregators like Google to pay for content they link to and to filter content they upload for possible copyright violations.
Corporate tax or digital tax?
Germany has opposed these initiatives partly out of fear they will antagonize the United States, since they are clearly directed against the two American tech giants. Instead, Mr. Scholz has come up with a plan that is much more generic and feeds into ongoing international consultations on how to combat tax avoidance strategies that exploit gaps in national tax rules.
These talks on so-called “base erosion and profit shifting,” or BEPS, target companies who artificially shift profits to low or no-tax locations. Google uses accounting tricks to shift most of its profit from European operations to Ireland, for example. The Organisation for Economic Co-operation and Development, the grouping of industrialized nations, is working on an inclusive framework with more than a hundred countries and jurisdictions.
The Scholz plan is a kind of BEPS 2.0. Offered jointly with France it proposes a minimum corporate tax that could become a standard for international implementation. When a foreign subsidiary pays a low tax rate, German tax authorities, for instance, can collect the shortfall to the minimum rate. The proposal, which will cover all firms, was reportedly welcomed by the OECD.
Both US authorities and business representatives across OECD members have expressed a willingness to at least discuss the proposal. For business, the proposal would have be part of an overall reform of corporate taxes along the lines of that recently implemented by the US administration.
The hitch is that a project like this takes a long time and it will be years before any concrete measure emerges. In the meantime, Mr. Scholz will face calls to implement the digital tax. The best German authorities can hope for is to set a time limit on the digital tax, so that it will expire by the time the minimum rate comes into force.
Even that, however, will be a challenge. Mr. Scholz’s French counterpart, Bruno Le Maire, has already suggested that he sees the minimum rate as a complement to the digital tax, not an alternative. And the EU has suggested that the elimination of a digital tax could only be discussed after a minimum corporate tax is introduced.