Commissioner Vestager: Global digital tax agreement still possible
European Commission Vice President Margrethe Vestager, who participated in the Lennart Meri Conference on Friday told ERR radio news that she still has faith that an international agreement on digital tax could be reached.
Margrethe Vestager, you just had a meeting with Estonia's minister of economic affairs, and also Estonian entrepreneurs – both from the industrial sector and the digital sector. I also happened to speak with some of them yesterday. Many of them actually share a concern. They say the relaxation of state aid measures in the European Union is making it increasingly difficult to compete with industry in big Western countries. Since March 2022, Germany and France have supported their companies with over €500 billion. This accounts for nearly 80 percent of the total state aid approved in the European Union. Small countries such as Estonia, don't have this kind of money to support our companies. Nor do we even have this kind of big industry. Do you share the concern of our entrepreneurs?
I think that everyone realizes that we live in times where we need to accelerate the green transition, for example, we need to enable the production of semiconductors in Europe. There are things that are important because of geopolitics, climate change or our security.
That being said, it's really important to be extremely careful so that our single market is not put at stake. This is why these more generous enabling rules – they are temporary. This is why we still check that aid cannot be more than what is necessary for the project to go ahead. It must be proportional to what the private investor would put on the table.
And if it's something that is at risk of disturbing competition it must be remedied somehow. For instance, if a company is getting a lot of aid, they cannot acquire another company, they cannot pay a lot of dividends to their owners, because actually the taxpayer just stepped in. We have to be really careful and listen to these concerns.
What do you think will be the long-term effects of these relaxed state aid rules for countries such as Estonia?
We saw it with COVID support where we also had temporary rules. They're not all gone with the pandemic. Here the state asked your business to close and your customers to stay at home so, of course, it was legitimate for member states to step in and help businesses hibernate.
We saw enormous state aid budgets, but when we then asked and asked again, it turned out that not a lot of that aid was actually being paid out. A lot of that aid was also in the form of a loan that had to be paid back.
So actually, even though a lot of aid was enabled during COVID, we do not think that the disruption of competition was that big. Of course, we are now in a different situation, but we will follow it as closely as we did, to see if there is a risk to our single market.
As I understand it our entrepreneurs see single market risks and Estonia affected negatively. Whence these concerns?
I think they tell you what they see and probably also what they are concerned about. I think it's a mix of reality and perception of how the future will develop.
What we can do is be very prudent, insist that this is temporary, that this generosity will have to stop – also when it comes to establishing renewable energy or semiconductor production, whatever it may be. At the same time, though, I think there is broad agreement that we are in times where extraordinary measures are actually needed. For us, it's all about having a balance.
Is it even possible to create equal competition between industrial heavyweights such as Germany, a rich country with a population of 83 million located at the heart of Europe, and little Estonia with a population of 1.3 million located next to potential aggressor Russia? Is it even possible to create equal competition here?
I think we do not always compete sort of head-to-head in the very same industries. I think that if you ask in Germany, there will also be a lot of voices of envy of such a digitalized state, of so many unicorns being developed on a very international labor market, and a lot of innovation taking place.
Estonia is quite unique in being able to do that. Sometimes we compete internally head-to-head, but in other times we complement one another. A lot of the high tech and deep tech businesses that we see will probably, for instance, need the semiconductors that will be produced in some of the supported facilities in France, Italy and Germany.
Let's talk about digital taxation. European Commission President Ursula von der Leyen entrusted you with coordinating the work on digital taxation so that big multinationals such as Google, Apple, or Facebook would pay their fair share in Europe. We are now halfway through 2023, and we are still waiting for the OECD. France's Minister of Economy and Finance Bruno Le Maire has already said that the chances of success on the international level are in fact very slim. Some say it would be near impossible to get both the U.S. House of Representatives and the Senate to agree to a tax proposal that is basically undermining their belief in "America First." Shouldn't we start looking for a "European solution" now already?
Well, we had one proposal that we put in a drawer when we decided to go more global. We managed to have the agreement with, I think, 187 countries, not only OECD, but more countries than that. The first part of the agreement is now law in Europe and in the U.S. and that is to have a minimum of 15 percent of effective taxation (global minimum corporate tax rate – ed.).
This will only be effective with the second part of the global agreement which is that big companies should distribute their taxable income to countries where they actually make their money. Here, it's not only a sort of political unwillingness, it's also technically complicated. Actually, we have not really been put to the political test, if we can make this essential second part of the agreement also happen.
Of course, sometimes I open the drawer and look at our proposal down there, and say that there may be a day where we have to redo it – look at the situation, maybe update the proposal that we had. We need to be willing, if the global agreement fails, to do something in Europe, in order to have tax fairness, because we do not have this tax fairness today. Even though we have made progress, we're not there yet.
How likely is it that the global agreement will fail?
I thought you would ask me how likely it is that it would succeed. If you asked me two and a half years ago, is it likely that we will have an OECD agreement on the proposals, I would have said that the chances are very slim. And then it happened.
Had you asked me whether even just European countries can agree on a minimum of 15 percent effective taxation, I would have said that it's definitely not a given that this will happen.
What we have experienced so far is that things that were not likely have happened anyway, so I have definitely not given up yet.
The EU leaders said already in December that the Commission should put forward an appropriate solution by the end of this year in case there is no international agreement. Have you already started drafting this appropriate solution in case the international talks fail and what would this "European solution" be then?
That, of course, remains to be seen. I still think that it would be best if everyone did what they have said already. That would still be the preferred option so we should do what we can to make this happen.
That said, we are perfectly ready to do as we are asked, to table a proposal. We have one already, but of course that needs to be updated. But first things first – until we see a failure, we should not act as if it has failed.
You still have hope?
I still have hope because I've been positively surprised twice now and you know – maybe three in a row.
Let's continue with one of the biggest crises Europe is currently dealing with – there is currently war on European soil. About a week ago, the Commission proposed its plan to send one million rounds of artillery ammunition to Ukraine in the next 12 months. But Russia is also increasing its military industrial production. NATO Secretary General Jens Stoltenberg has warned that Mr Putin is engaged in a war of attrition. How prepared is the European industry to support Ukraine's needs long-term, should the war continue for maybe years?
Well, the fact that we have war in Europe has changed Europe. We are much more focused and we are much more united than we ever were.
I think Estonia has played a very crucial role in securing that being very active and focused, keeping everyone to the goal, making it real what president von der Leyen always says – we stand with the Ukrainians, this is a must win battle. We stand with Ukrainians not only until the war is over but also to rebuild Ukraine into becoming a member of the European Union. So what we do today, of course, has effects long-term.
When it comes to ammunition, the European defense industry is very much at their capacity limits but we're trying to give incentives for a fast enlargement of this capacity because ammunition is absolutely needed.
First, member states have said that we will empty our shelves – what we have in storage, we will send that to Ukraine. We will work together in public tenders in order to reshelve quickly and we will do what we can to increase the production capacity in Europe.
I think that the fact the we are able to do more things ourselves will also serve well long-term. We will then be a stronger partner within NATO, and I think that this is really important for our long-term security.
Are we prepared for the war to continue long-term?
We do what we have to because, unfortunately, we cannot say when this will end. We are in it for the long term.
No-one thinks that you can rely on this being done within this year. We need to have the long-term perspective which is also why one shouldn't say "oh but it will take a bit of time to build up that capacity so better not do it".
No – even if things will take a bit of time, better get it started. We will need this capacity, either for Ukraine, or for ourselves in order to restock the storage that has been emptied because we are sending as much as possible to the Ukrainians.
Finally, Margrethe Vestager, you are the executive vice-president for A Europe Fit for the Digital Age. How fit is Europe for the digital age in 2023, and what are the main challenges to make Europe more fit?
Well, Estonia is very fit for the digital age, making very good use of technology to make sure that people are well-served by the state. Estonia is also making good use of the business opportunities that come with everything digital – not only starting businesses, but also scaling businesses.
Not all member states are Estonia, though. They are very different so it's really important to take inspiration from Estonia, and to see being fit for the digital age as considering how to make our country better. How to make sure that whatever state bureaucracy is needed, it is as lean as possible, and then use technology to do this. Because this is not just about how to make more use of technology. This is about how to make sure that every citizen is served in the best possible way. Because one of our limitations is that we have very little time, and everybody hates admin. And when that takes up time, well, we should all look at ourselves, say "listen, come on, this this should be done in a digital way". So we still have a way to go, but also as citizens we need to do more to learn. In Europe, an average only half of us would have, you know, sort of basic digital skills. And we still need many, many more experts in order to be the creators of next generation of technology rather than someone who just takes it from the shelves, something that has been coded in the U.S. or other places. So it's really good to be here to get the inspiration to give that a real push.
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Editor: Marcus Turovski