Madrid Caves In To US Pressure By Freezing The Google Tax

Spanish Ministry of Economy, Nadia Calviño

The Spanish government boasted not so long ago that nothing could deter it from taxing the tech companies. It heralded this move as a cornerstone for increasing the much-needed resources for financing extra spending without hurting the man in the street. When confronted with the task of delivering its promise, courage seems to falter even if Washington has issued no explicit warning. Presumably, the French discomfiture conveyed a stern lesson of what happens to anyone defying the US.

The government has tabled a proposal for a Google tax but will refrain from applying it till the year-end. It counts the G-20/OECD initiative gathering consensus by that date. Yet, current discussions offer a dismal prospect as the US raises successive hurdles to water down the deal. It succeeded in broadening the scope to all on-line sales to customers, ranging from tech-services to cosmetics, fashion and luxury goods. It now blocks any agreement failing to include a safe harbour scheme, designed to minimise its potential fiscal losses.

The Google tax represents a tiny share of the package under discussion. The real beef lies in setting out clear rules for ensuring an even playing field in multinational tax arrangements. Addressing the arm’s length principle in intra-group transfer prices stands as the paramount goal for avoiding unloyal fiscal competition, an area where Europe can hardly lecture anyone else. The cases brought by the Commission against the Benelux countries for illegal tax schemes stand as a reminder of the extensive evasion fuelled by widely respected authorities. Not to mention the Irish haven where multinationals safely unload and clean their tax burden.

Is it wise to risk trade retaliation for collecting less than a billion euros per year? Is it wise to enact such a tax before reaching global consensus, moving on its own when the OECD openly disavows unilateral steps in such a sensitive field? Is it wise to bet the proposal will match the final agreement when it so obviously departs from the current state-of-play? For, it neither covers the same targeted taxpayers, nor its revenue base mirrors the profit one under the OECD initiative. Yet, the Spanish government seems ready to confine common sense to oblivion when it comes to delivering demagogic topics of its agenda.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.