Europe will take measures into its own hands next year to introduce a digital tax on global tech giants if nations fail to reach an agreement, according to the president of the European Commission.
In her first State of the Union speech, Ursula von der Leyen, who took over from Jean-Claude Juncker in December, said the European Union would go it alone to ensure Silicon Valley giants such as Google and Facebook paid their share in taxes.
Efforts to squeeze more tax payments out of some of the world’s biggest companies have gathered momentum in recent years with proposals drawn up with the Organisation for Economic Cooperation and Development and G20 gaining support in the EU.
But plans to create an international framework for a digital tax took a hit in June after the US pulled out of talks, and threatened to retaliate against any policies that would target its domestic firms.
At the time, US treasury secretary Steven Mnuchin said that discussions over a proposed global agreement to allow countries to tax profits made in their jurisdictions had reached an "impasse".
In a letter to four finance ministers including Chancellor Rishi Sunak, Mr Mnuchin said that the discussions were "a distraction from far more important matters".
“We will spare no effort to reach agreement in the framework of OECD and G20,” von der Leyen said. “But let there be no doubt: should an agreement fall short of a fair tax system that provides long-term sustainable revenues, Europe will come forward with a proposal early next year.”
The comments from the European Commission's president came in a broad-ranging speech to European ministers, in which she called on the bloc to usher in a “digital decade” while addressing other key issues such as coronavirus and Brexit.
Von der Leyen also said that she plans to review the European Commission's competition rules early next year to keep up with global practices.
The EU has looked to a digital tax as a means of generating fresh funds as it looks to offer greater support to nations that have suffered as a result of the pandemic.
Ms von der Leyen said 20pc of the EU’s 750bn euro (£680bn) recovery fund would be directed towards investments in digital tools and services, with another 8bn euros set aside for more frontier technologies such as supercomputers.
In April, the UK introduced a 2pc digital services tax to target “large digital businesses” that the government said would reflect “the value derived from their UK users”.
It affects companies with more than £500m in global revenues, with at least £25m being generated from UK users of internet services.
Tech firms such as Google and Amazon have responded by announcing measures that would pass on the cost of increased taxes to advertisers and sellers.
France, Italy and numerous other countries are considering similar tech taxes targeting American companies, provoking anger from the United States government.
A report from TaxWatch, a British think tank, found that Apple, Google, Cisco, Facebook and Microsoft together avoided around £763bn in tax in 2018 by booking their UK profits in other countries.