Our tax rules are stuck in the 20th century

Web giants have taken advantage of our failure to act.

Bruno Le Maire(Source: AP/TASR)

Bruno Le Maire is the French Minister of the Economy and Finance. The following text is his address at the Tribune on the Taxation of the Global Web Giants on October 18, 2018.

A new economy is unfolding under our eyes. Driven by digitalisation and transparency, this new economy is full of promises. However, we must still write the rules that will ensure fairer distribution of wealth, greater social and fiscal justice, and prevent capital and knowledge from becoming overly concentrated in the hands of a privileged few.

Fiscal justice is an integral part of the birth and life of democracies. It is through taxation that governments raise the funds needed for the public interest. The future of our democracies depends on everyone paying their own fair share of tax. Yet this is not the case at present.

We are not criticising web giants for their success

At an unprecedented pace and in barely a decade, our daily lives have been revolutionised by a handful of multinational corporations in the digital technology sector. Thanks to these global web giants, our handheld devices put the world at our fingertips. Access to any content is just a few clicks away, and we can communicate faster than ever before. The global web giants have changed our lives and our consumption patterns. These companies are innovators and job creators.

We are not criticising them for being successful. Instead, our criticism is focused on a blatantly unfair situation: the colossal divide between the wealth these companies create, using both our personal data and the infrastructure at their disposal, and the amount of tax they pay into the system.

Until now, we have preferred to turn a blind eye rather than tackle this situation head-on. We have preferred a situation in which our own corporations pay income tax rates that are 14 percentage points higher than what the global web giants pay. We have tolerated a situation in which these companies use our personal data to build up their wealth without really paying anything in return.

We have failed to act

They have taken advantage of our failure to act. While they have been changing the world, we have not altered our approach. They have taken advantage of our inability to work together to update tax rules that are still stuck in the 20th century, with taxes calculated chiefly based on the physical location of production facilities.

But now we must take action. The matter is urgent. Technical issues should not divert our attention from what is really at stake. Year after year, this unfair competition is sapping our innovative capacity, undermining the ambitions of our entrepreneurs and draining funds from the public purse.

Most of all, this situation is detrimental to all those who pay their fair share of tax. If the most profitable corporations avoid paying tax, the consequences are straightforward: all the other companies and all citizens must pay more tax. Otherwise, we will no longer be able to fund the services that are essential to the public interest.

Restoring the fairness

Hence we must act now to answer the demands of the citizens of Europe for fair and efficient taxation. We will not be successful if each country tries to go it alone with its own tax rules because the global web giants use our differences to their own advantage by pitting countries against one another.

Europe is in a position to be the first to change this situation. Only at European level can we defend our common interests. We have done so to protect our personal data and to protect copyrighted materials; now we must do the same to restore fairness to our tax system.

For more than a year now, several European countries, including France, have been at the forefront of this fight.

We were told by some that it could not be done, as changing the tax rules would require unanimous agreement. We were told that nobody could convince all 28 EU Member States – especially not those that benefit the most from the current situation.

As of today, we have brought more than 20 Member States on board in support of a straightforward, effective solution: a 3-percent tax on the turnover of the largest corporations in the digital technology sector. We wish to reach agreement on a legislative proposal by the European Commission by the end of the year, to take effect as soon as possible.

First European response, then global

Granted, this solution is not perfect; an ideal response would be global in scope. However, no global response will be successful unless we can first implement this temporary solution at European level. Never before have we been so close to restoring fairness to our tax system. Why would we continue to put off what we can fix now?

The citizens of Europe will no longer tolerate the status quo. They no longer have the patience for a long succession of meetings behind closed doors, conferences of experts and summits that fail to produce tangible results. It is time to make a decision.

Together, we must acknowledge that the current situation is unfair and we must take action. Six months ahead of the European elections, we have an opportunity to prove that Europe can improve the daily lives of its citizens. It is time for us to seize this opportunity.

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