Brussels Strikes Down a Third National Tax… Is the French Digital Tax Next?
Finance ministers in Europe might want to take note of the European Commission’s increased scrutiny of national taxes that conflict with EU state aid rules.
The European Commission is increasingly blocking national taxes which give national firms an illegal advantage over their competitors. Last week the European Commission announced its investigation into a tax on the food retail sector in Slovakia. The Commission was concerned that certain exemptions from the tax would give some retailers a selective advantage over their competitors, in breach of EU state aid rules. The Slovak tax was quickly withdrawn.
The European Commission has similarly ruled that there was state aid in other recent taxes in Hungary (an advertising tax) and Poland (a tax on the retail sector).
However, not all Member States seem to have taken note of the Commission’s enforcement of EU state aid rules. In recent months, a few countries have announced national digital taxes with obvious similarities with the illegal state aid taxes of Slovakia, Hungary and Poland. France and Italy have for instance all proposed Digital Services Taxes (“DST”) aimed at taxing a few, mostly foreign, ‘big tech’ firms, while shielding national tech firms from the tax. The French DST is expected to be the first one to be adopted in the coming months.
A leading EU state aid lawyer recently analysed the DST proposals. He concluded that: “By treating differently companies that are in a comparable situation, unilateral measures such as the French, Italian or Spanish DSTs would, in my view, constitute clear State aid. . . [T]he Commission will in any event ultimately intervene, or be forced to intervene.”
So will the European Commission intervene? The European Commission is increasingly investigating competition issues in the tech sector and it will eventually have to look into national digital taxes. Unlike other types of competition cases, the Commission is legally obliged to investigate a complaint and adopt a formal decision on national digital taxes. So the question is not if, but when the Commission will scrutinise national digital taxes.