Proposals to introduce a tax fiercely opposed by Ireland will be discussed by European finance ministers meeting in Brussels next week.
Tuesday’s meeting about the European digital tax on internet companies’ profits will be preceded on Monday by a gathering of euro zone finance ministers at which a new Eurogroup head to replace Jeroen Dijsselbloem will be elected.
The former Dutch finance minister is stepping down from the role in January.
But it is the proposals for the digital tax, which would be levied on the sale of big digital players in EU markets, that Minister for Finance Paschal Donohoe will be watching more closely than any election.
Next year, the European Commission will publish its legislative proposal for new forms of taxation on digital companies.
The Irish Government fears this could dramatically reduce the attractiveness of Ireland as a base for many of the world's biggest technology companies, including Google, Apple, Facebook and LinkedIn, all of which maintain big operations in Ireland.
Some of these companies also utilise Irish tax laws to minimise tax bills elsewhere – a factor that has long angered bigger member states.
Ireland recognises change to the international taxation of internet companies is coming, but wants that process to be managed by the Organisation for Economic Co-operation and Development (OECD).
Tax avoidance
The organisation has been examining the issue, and the related question of tax avoidance by multinational companies, in recent years.
However, the commission – backed by bigger member states, especially France – is keen for the EU to move ahead on its own.
Ireland strongly opposes such a development, and has warned that a unilateral move could see big technology companies move their headquarters outside the EU – a prospect made more likely by the UK’s impending exit.
Mr Donohoe has been wooing smaller member states in northern and Eastern Europe to join the opposition to the commission’s plans. “We’re working together with other countries,” said a source familiar with the Irish Government’s efforts, citing contacts with “the Nordics and the Baltics”.
“Like us, they are small countries who see the digital economy as compensation for the disadvantages of size,” the source said.
Irish diplomats have been working in advance of the meeting to promote the OECD as officials put together the draft conclusions for next week’s meeting.
According to a briefing document seen by The Irish Times, the draft conclusions "highlight the urgency of agreeing on a policy response at international level".
It suggests that an “appropriate nexus” be explored in the form of a virtual permanent establishment, together with amendments to the rules on transfer pricing and profit attribution. The draft calls for close co-operation in this process between the EU, the OECD and other international partners.
The draft goes on to note that there is desire among some member states for a temporary tax to be implemented while the broader questions of how to tax digital revenues internationally is worked out.
“As concerns action at EU level, it notes the interest of many member states for temporary measures, for instance an ‘equalisation levy’ based on revenues from digital activities. The draft calls on the commission to thoroughly assess these measures,” the briefing note says.
