Italy Follows France in Levying a Digital Tax
December 24 2019 - 1:17PM
Dow Jones News
By Eric Sylvers in Milan and Sam Schechner in Paris
Italy will soon join France in applying a new tax on large tech
companies, a move that could deepen trans-Atlantic trade tensions
and snarl up already-faltering negotiations over how best to tax
companies such as Facebook Inc. and Google parent Alphabet Inc.
The new tax, passed this week by Italy's parliament, will take
effect Jan. 1. Similar to the tax implemented this year in France,
Italy's imposes a 3% levy on revenue on some digital revenue for
companies with more than EUR750 million in global revenue,
including least EUR5.5 million in Italy.
The Italian announcement, combined with the French tax,
complicates a broader effort among more than 100 countries to
overhaul corporate taxation for the digital age. Many countries
complain that U.S. tech companies pay too little income tax in the
territories where they have users and, until now, most have held
off on imposing their own national taxes. That reluctance may be
fading, however, with others such as the U.K. or Canada potentially
ready to follow suit.
To stave off a patchwork of overlapping levies on American
firms, the U.S. had been engaging more directly than in the past in
negotiations to come to an international solution, under the
auspices of the Organization for Economic Cooperation and
Development, a think tank of rich economies. Progress had been made
toward an agreement that would give countries the right to expand
taxation of corporate income. OECD officials had been trying to
broker a deal to determine the scope of those powers and which
companies would be affected.
But this month U.S. Treasury Secretary Steven Mnuchin sent a
letter raising "serious concerns" about the emerging agreement, and
instead proposed a system in which companies could choose whether
to operate under new OECD-brokered rules or to stick with the
current system. That was a nonstarter for some European
countries.
"It's choppy waters. It's difficult," Pascal Saint-Amans, the
senior OECD official leading the negotiations, said during a panel
in Washington last week. "The first feedback we've had (is) that
optionality may not be welcome, but it's the U.S. position and no
one can ignore the U.S. position," Mr. Saint-Amans said.
At issue are decades-old rules that generally allocate corporate
profit for tax purposes based on where value is created. But modern
multinationals -- particularly ones with digital offerings -- can
sell their products across borders in ways that leave little
taxable profit in a country where those products are consumed.
Tech companies and their lobbyists have said they support the
international process to update tax rules, but strongly oppose
unilateral digital taxes based on revenue, like Italy's or
France's. American tech firms say that under current rules they pay
the bulk of their taxes in the U.S. because that's where their
products are mostly designed.
The European Union had attempted to agree on a uniform digital
tax across the entire bloc as recently as spring. But it abandoned
the effort, which would have required unanimity among EU nations,
because of opposition from countries such as Ireland and Luxembourg
that are home to the regional headquarters of several large U.S.
tech companies.
That is when France applied its own version of the tax --
drawing quick condemnation from Washington. In response to the
French levy, the Trump administration earlier this month proposed
tariffs of up to 100% on French wine, cheese and handbags. The U.S.
is also threatening similar retaliation against Italy.
Representatives of the U.S. Trade Representative didn't respond
to a request for comment.
A spokeswoman for the French finance ministry said that Italy's
new digital tax will increase pressure on the U.S. to find an
agreement at the OECD level. French Finance Minister Bruno Le Maire
is expected to meet with U.S. Treasury Secretary Steven Mnuchin in
January, the spokeswoman added.
Both France and Italy say they will repeal their taxes when a
deal is reached at the OECD. To calm tensions with the U.S., France
over the summer offered to repay companies the difference between
the French tax, which the government in Paris expects to bring in
EUR400 million in 2019, and the mechanism eventually agreed upon at
the OECD.
Italy, for its part, could use the extra EUR700 million it has
forecast the digital tax will bring in annually. The country is in
a continual struggle to stay within EU fiscal rules and prevent its
budget deficit growing. Italy is also planning to levy new taxes
next year on sugary drinks, plastic packaging and company cars.
The Italian tax only hits business-to-business transactions such
as advertising, as well as services such as cloud computing,
sparing digital content streaming services such as Netflix and
Spotify.
Italy passed a digital tax as part of its budget last year, but
held off implementing it as it waited to see if there would be
coordinated response from the EU or the OECD.
The Italian government didn't respond to requests for
comment.
Write to Eric Sylvers at eric.sylvers@wsj.com and Sam Schechner
at sam.schechner@wsj.com
(END) Dow Jones Newswires
December 24, 2019 13:02 ET (18:02 GMT)
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