September 29, 2017 / 4:40 PM / in 21 days

Lagging U.S. online giants, Europe calls on them to pay up

TALLINN (Reuters) - French, Italian and other European leaders upped the pressure on mostly U.S. tech giants to pay their fair share of taxes in the European Union and abide by the bloc’s rules when they met on Friday, but were still far from a consensus on the issue.

EU leaders pose for a family photo during the European Union Tallinn Digital Summit in Tallinn, Estonia, September 29, 2017. REUTERS/Ints Kalnins

European Commission President Jean-Claude Juncker said the EU executive would propose new rules next year to provide a level playing-field between bricks-and-mortar companies and digital ones.

But European countries are split over whether online companies such as Google (GOOGL.O), Facebook (FB.O) and Amazon (AMZN.O) should pay more tax, with smaller EU members such as Ireland and Luxembourg - which host many online businesses - worried that taxes would hurt their competitiveness without a global solution.

“People moan that there is no European Google, that there is no European Facebook, that there is no European LinkedIn, but my view is that if you want those things in Europe and you want those types of companies to generate in Europe it’s not through heavy taxes and high regulation that you achieve that,” Irish leader Leo Varadkar told reporters, arriving at the meeting in the EU’s would-be “digital capital” of Tallinn in Estonia.

Others, however, say the online multinationals do not pay enough tax in the EU by re-routing profits to low-rate countries such as Ireland and Luxembourg.

There needs to be a consensus among EU countries to implement tax reform, though the European Commission has raised the possibility of stripping members of their veto rights on tax issues, a move Ireland has said it will resist.

‘STRONG DRIVE’

French President Emmanuel Macron said “digital giants” should contribute more to the infrastructure needed to ensure a smooth transition to a digital economy, saying it was “absurd” that economic actors shaken and sometimes weakened by the digital world should be the only ones financing this transition.

“That is why ... I support the initiative taken by several finance ministers for a tax on the value created in our countries. This tax will allow us to levy a fair contribution to public goods by taxing the actors who are competing with our European actors and who are today not taking part or not taking sufficient part,” he told a news conference.

Italian Prime Minister Paolo Gentiloni said countries that supported the tax reform not only could but “should” move ahead unilaterally.

However, a Spanish government official struck a more cautious note, saying an EU-wide solution remained the best option and Ireland could be encouraged to come on board.

“We will get there. There is a very strong drive,” the official said. “We will have to find a way to tax. Not to tax more but to tax the digital companies.”

The official added a tax on turnover instead of profits could be implemented by individual countries without even resorting to enhanced cooperation.

The Commission estimates the effective tax burden for digital companies is 10 percent, compared with the 23 percent for bricks-and-mortar companies.

Separately, a source in the French president’s office said the Irish prime minister would come to Paris at the end of October where the subject would be raised.

In the longer term, the EU wants to change existing taxation rights to make sure digital firms with large operations but no physical presence in a given country pay taxes there instead of being allowed to reroute their profits to low-tax jurisdictions.

The Commission has outlined three options for taxes aimed at internet companies that could be agreed upon relatively quickly at the EU level or by a smaller group of EU nations.

One is for a tax on the turnover rather than the profits of digital firms, another would put a levy on online ads, and a third would impose a withholding tax on payments to internet firms.

Additional reporting by Marine Pennetier and Alissa De Carbonnel; Editing by Mark Potter

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