EU Eyes Digital Tax To Fund Recovery From Pandemic

The European Commission said Wednesday that it is eyeing a digital tax, as well as a tax on carbon, to help fund a program to help Europe rebuild after the novel coronavirus crisis.

The document outlining a widely awaited €750 billion ($823 billion) recovery program said a new digital tax would build on the work of the Organization for Economic Cooperation and Development, which is leading the effort to overhaul the global tax rules to operate more fairly in the digital economy. 

In announcing the program, which follows a similar plan introduced last week by the leaders of Germany and France, the commission acknowledged the magnitude of the economic shock from the coronavirus pandemic, which has caused widespread business closures.

"This is a historic and one-off proposal which reflects the scale and the size of the challenge facing us," the commission said in a document.

The commission, the European Union's executive branch, plans to finance the fund by borrowing and then distribute the money in grants and loans to European Union countries. Two-thirds of the money, €500 billion, would be distributed in grants, and the rest distributed in loans.

The document outlining the program said the EU could raise new funds to repay the grants or loans through a so-called carbon border adjustment mechanism, which is intended to make it more expensive for companies to import items from countries with weaker environmental rules. Repayment would happen at some point between 2028 and 2058, the text said. 

The document also mentioned a resource, or source of revenue, "based on the operation of large companies." Funding could also come via "a new digital tax, building on the work done by the Organization for Economic Cooperation and Development."  The text reiterated that the commission was ready to act on its own if the OECD fails to achieve a global digital tax deal.

The commission didn't have an immediate response to a request for further comment.

The commission proposed a digital tax in 2018, but it failed to draw the needed unanimous support of EU member states. For now the proposal has been shelved in the hope that the OECD can steer an international digital tax agreement.

European Commission President Ursula von der Leyen urged European lawmakers to back the proposal. In an impassioned speech in the European Parliament, which was webcast, von der Leyen said that the program was necessary to keep Europe together as it recovers from the crisis of COVID-19, the respiratory disease caused by the virus.

"We either all go it alone, leaving countries, regions and people behind, and accepting a union of haves and have-nots, or we walk that road together, we take that leap forward, we pave a strong path for our people and for our next generation," she said.

"For me the choice is simple. I want us to take a new, bold step together," said von der Leyen, a former German defense minister who took her commission post in December.

Speaking after von der Leyen, fellow German Manfred Weber, who leads the center-right People's Party bloc in the Parliament, said he backed the idea of a digital tax.

"The big winner of the crisis are the digital giants," he said.

Despite the strong rhetoric, however, it's by no means certain that the package will receive the unanimous agreement needed from EU countries.

--Editing by Robert Rudinger.

For a reprint of this article, please contact reprints@law360.com.