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The future of Europes digital tax will be decided in Berlin.
After a campaign-style stop in Strasbourg last week, Bruno Le Maire, Frances finance minister, jetted to the German capital Friday to woo his counterpart, Olaf Scholz, over Paris attempts to levy a revenue tax on digital services within the EU. The proposals will again be debated among members states on November 6. Aiming to secure a deal before the end of the year, Le Maire is eager to win Germanys support — something that is certainly not a done deal.
POLITICO talked to players on all sides of the debate, many of whom spoke on the condition of anonymity because they were not authorized to speak publicly. Heres what they had to say:
— What the French want: With the majority of member states already supporting Frances proposals (a 3-percent levy on digital revenues generated within the 28-member bloc), Le Maire wants to shore up backing from Berlin to make it an almost slam dunk that the countrys plans will become a reality. To steady German fears, France is adamant that the revenue tax wont hit the likes of BMW and Daimler, saying the levy will only affect those collecting personal data (aka Google and Facebook) and not industrial data (like German automakers). The French also point out that Australia, Israel and Italy have all enforced versions of a digital services tax, without prompting an exodus of tech players.
“I think a compromise in the coming weeks is possible,” said Le Maire. “We will be able to send the clear message that we agree on a fair taxation of the internet giants.”
— What the Germans want: Along with ensuring local industries arent overly taxed, Berlin still isnt convinced that Frances proposals will generate the estimated €5 billion in extra annual revenue for national coffers. German policymakers also want clarity over what the tax is — one based on revenues, or is it a form of indirect taxation? Berlin remains lukewarm on the current proposals before member states, but would not be averse to national governments pushing ahead with their own digital tax reforms if there is no EU-wide consensus.
“We need a minimum tax rate valid globally which no state can get out of,” Scholz, wrote in Welt am Sonntag, a German newspaper.
— What the holdouts want: Countries like Ireland, Estonia and the Czech Republic remain opposed to Frances goals, mostly because they see it as Paris exerting too much control over their domestic industrial policies (often based around a low corporate tax rate). Yet with the small group likely to get smaller as Paris picks off member states with sweetheart deals, those left are increasingly pessimistic about winning the day. No one has yet threatened to veto the whole package, and few are willing to do so in fear of losing allies on other EU-related business.
“Any such measure will be ill-judged,” Leo Varadkar, the Irish prime minister, told the countrys lawmakers in reference to the European Commissions proposals. “It would likely disadvantage smaller member states.”
— What the U.K. says: Lets have some of that. While Theresa May is betting on tech as a growth engine post-Brexit, her cabinet wants tech companies to pay a greater share of tax. Remember Philip Hammond, the British finance minister, saying that the U.K. would “go it alone” to enforce a digital services tax if countries failed to come up with an international solution for taxing internet giants. Details on the U.K. proposal are scanty, though more will likely be revealed Monday during the countrys budget announcement. The ruling Conservative Party have so far balked at regulating the tech sector, but Hammonds strong words suggested there at least some momentum behind this proposal.
“The best way to tax international companies is through international agreements, but the time for talking is coming to an end and the stalling has to stop,” he said.
— What the U.S. wants: This one is easy. Steven Mnuchin, the U.S. Treasury Secretary, made his views very clear last week when he said Washington would only support digital tax reform at a global level done through the Organization for Economic Cooperation and Development, a group of mostly rich countries. So have U.S. Senators Orrin Hatch and Ron Wyden, calling the tax “discriminatory” in a letter sent to the Commission and European Council. Yet as even the Paris-based OECD is pessimistic that it can reach international agreement any time soon, American officials could consider retaliatory action if Brussels (or member states) slap U.S. tech firms with hefty new taxes.
“A tax should be based on income, not sales, and should not single out a specific industry for taxation under a different standard,” Mnuchin said.
— What tech wants: This one is more complicated than you would think. Big Tech (even those who dont generate much revenue from digital sources) is 100-percent against the revenue tax, saying that it would harm both big and small tech firms alike. Yet when POLITICO talked to (European) startups and venture capitalists, they were not categorically against the proposals. Instead, they believed the levy should solely apply to large firms, and leave fledgling companies (with limited, if any, revenue or profit) well alone. To be clear: under the current Commission proposal, the tax would only kick in above €750 million in revenue, leaving out the minnows.
“A digital services tax, as proposed by the EU, is troubling and could set a dangerous precedent,” said the Information Technology Industry Council, trade body representing many large tech companies.
— What will likely happen: Its a cliché, but if France and Germany agree to a joint position, the power of Europes two largest countries will mean the digital tax proposals get approved. If they dont, then member states (led by Paris) will likely endorse a coordinated national approach, in which those in favor of a digital levy will impose it collectively within their own borders. Expect the next two EcoFin get-togethers (the aim is to seal a deal by Decembers meetings) to be make or break.
POLITICO gives the chances of a deal being struck as 6.5 out of 10.
Good Morning and welcome to Morning Tech. A gaggle of MEPS (led by Pilar del Castillo, Lambert van Nistelrooij and Michal Boni) will be in Israel to check out the countrys tech sector — not a bad time to go as it will be a sunny 29 degrees in Tel Aviv today versus a rainy 7 degrees in Brussels.
In Vienna, a conference about quantum technologies kicks off, while in Brussels, Councils Working Party on cyber issues convenes.
SOCIAL MEDIA — THE LIMITS TO FIGHTING DIGITAL MISINFORMATION: Facebook said late Friday it had removed 82 pages, accounts and groups linked to Iran that had targeted U.K. and U.S. users (read here or more below). The response was timed ahead of the U.S. mid-terms, and is part of the social networking giants efforts to clamp down on the worst forms of online disinformation.
— Tactics are changing: Its telling that the now-deleted content was not the kind of fake news that engulfed the U.S. Presidential Election in 2016. Instead, (as Morning Tech has already pointed out) the strategies have become a lot more sophisticated, with a renewed emphasis on political (therefore legally permissible) content aimed at polarizing the electorate.
— It doesnt get better: In an opinion piece for the New Statesman, Ian Lucas, a British lawmaker who sits on the U.K. parliaments committee investigating fake news, lambasted Facebook for its lack of transparency over political ads. He pointed out that an obscure website called mainstreamnetwork.co.uk had bought £250,000 of Facebook ads to promote its pro-Brexit messages on the platform with little transparency over its intentions. “No one outside Facebook either knows or has the right or power to know what information is being disseminated on the Facebook platform or where it comes from,” Lucas writes.
— Comment tu dis “Fake News” en français? After the pro-Brexit group Leave.eu posted on Twitter that France was threatening to shut down Calais to British trucks with violence after Brexit, Jean-Paul Mulot, an official from the region around Calais, responded with anger to deny the claims.
— Ditto for the U.S.: Facebook has made a big effort to promote its efforts at political ad transparency (its disclosure system is expected to be rolled out in Europe by the Spring). But when Vice tried to buy online ads on behalf of U.S. Vice President Mike Pence, a senior Democratic Party official and even ISIS, the company approved them without a second thoughts.
— How to get radicalized on social media: The New York Times breaks down how Cesar Sayoc, the U.S. man arrested last week for allegedly sending pipe bombs to a number of politicians and CNN, went from posting photos of food on Facebook to becoming enraptured in partisan hate speech on the social network.
— Gab.com faces pay platform exodus: The US platform where suspected Pittsburgh shooter Robert Bowers shared anti-Semitic views appealed for help directly from U.S. President Donald Trump in a tweet, after complaining that Paypal, Joyent and Stripe had severed their ties.
COMPETITION — VESTAGERS CONFERENCE: Margrethe Vestager may be counting down her days at the Berlaymont, but that doesnt mean shes not throwing her political weight around to make a splash. The Danish politician is organizing a conference early next year to discuss competition in the digital era (current line up here). Morning Tech understands that her team have been ringing around many of Europes leading tech entrepreneurs and venture capitalists to get them to join her in Brussels, hoping to give the event a European flair.
We also hear that several of the large tech companies (you can guess who) have also been lobbying hard to get themselves on stage, and have been circulating memos outlining why they think the current status quo online is good for companies, big and small. Morning Tech will update you as soon as we hear whos accepted Vestagers invitations.
REGULATION — LORDS GO ONLINE: For an unelected body (with still some hereditary peers), the U.K.s House of Lords certainly likes to keep itself up to date. Tomorrow, Google, Facebook and Microsoft will give evidence to the chambers ongoing investigation in the need for internet regulation. Those on deck to speak include: Rebecca Stimson, Head of Public Policy, Facebook U.K., Katie ODonovan, Interim Head of Public Policy, Google U.K., Hugh Milward, Director of Corporate, Legal and External Affairs, Microsoft. Watch along here at 15:30 U.K. time.
**Youre Invited: Join us on November 26 in Brussels at POLITICOs event “Disruptive innovation and society: A balancing act,” presented by ETNO. The event will convene a high-level panel discussion to assess the disruptive effect of new technologies and discuss how this disruption can be turned into opportunities for society at large. Register today.**
ARTIFICIAL INTELLIGENCE — COLD WAR 2.0: Some light reading for your first Monday coffee: Wired lays out why theres a growing battle over artificial intelligence between the U.S. and China, and what that means for the rest of us (sorry, Europe, youre not invited). Meanwhile, the FT picks up a report by the Australian Strategic Policy Institute think tank, which is partly funded by the countrys defense force, that reveals that “China has sent thousands of scientists affiliated with its armed forces to western universities — especially in countries that share intelligence with the U.S. — and is building a web of research collaboration that could boost Beijings military technology development.”
— Talking of Skynet: What happens if AI starts to vote on our behalf or to draft legislation for politicians? Jamie Susskind in Fast Company explains what the technology has in store for how we all do politics in the years to come.
MOVERS AND SHAKERS: Trushas Barot, a former BBC journalist announced on Twitter that he was joining the social network to lead its “Integrity Initiatives” in India, the companys largest market (by number of users).
Phillip Malloch and Lise Fuhr were elected again as chairman and director general, respectively, of ETNO, the telecoms trade body. The group also appointed Alessandro Gropelli as its director of strategy and communications and Paolo Grassia as its head of regulation and advocacy.
Henri Verdier, Frances newly appointed digital ambassador, will represent Paris in all international negotiations on cyber issues. Why you should learn his name: Verdier was previously in charge of Frances digital strategy, which is far from timid, as we suggested above. BFMs Elsa Trujillo drew up a quick profile after French cyber news site Nextimpact broke the news.
TWITTER — TRUMP CALLS DROP IN FOLLOWERS FAKE NEWS: The U.S. President on Friday lashed out at the social network for reducing the number of users who follow him on the platform. “They have seemingly done something that makes it much harder to join — they have stifled growth to a point where it is obvious to all,” he wrote, seemingly without irony, on Twitter.
COMPUTERS — AUF WIEDERSEHEN EUROPA: Fujitsu, the Japanese tech company, said it would close its factory in Bavaria, according to Der Spiegel. The closure of the facility, Europes last computer plant, will mean the loss of 1500 jobs as Fujitsu plans to relocate most of its development, manufacturing and logistics back to Japan.
TELECOMS — LET THEM HAVE BROADBAND! Philip Hammond, the U.K.s finance minister took time away from bickering with his colleagues over Brexit to tell the Telegraph that he would announce hundreds of millions of pounds of extra investment to bring high-speed internet to rural areas. As regular Morning Tech readers will know, startups (and BT, within its regulatory remit) are already doing this.
DIGITAL CULTURE — HOW INSTAGRAM TOOK BROOKLYN TO THE WORLD: Morning Tech is a big fan of coffee. So we were intrigued by this Quartz video outlining how Instagram (with a focus on gramming your best self) helped to make Brooklyns hipster coffee culture a global phenomenon. Next step: bring decent coffee to Brussels.
Morning Tech wouldnt happen without Nicholas Vinocur and Zoya Sheftalovich.
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