Good morning and welcome to Europe Express.
As we head into the G7 leaders’ summit this weekend in Cornwall, we take a look at a potential irritant in EU-US relations next week: Brussels’ upcoming plans for a digital tax.
We will also unpack the European parliament’s latest power move to put pressure on Brussels to get serious about Hungary and the rule of law.
And with the Euro 2020 football championship kicking off today, an off-the-field scrap between Russia and Ukraine over shirt designs has blown into the open.
The G7 leaders meeting in Cornwall today will be able to point to recent progress on corporate taxation as evidence of the marked thaw in relations since the disarray of the Trump years, write Sam Fleming and Mehreen Khan in Brussels.
But as the FT has reported, the breakthrough among a handful of rich countries has raised a plethora of questions about the international tax reform programme under the auspices of the OECD, leaving a complex and decidedly uncertain process ahead.
Among the big issues confronting the European Commission is what to do about its proposed EU-wide digital levy, which it is meant to table in accordance with orders issued by leaders at a summit last July.
The EU’s previous attempt at a tech tax, aimed largely at US giants, foundered in 2019, but the idea was revived as the Trump administration threw up obstructions to the international process.
The driving force behind a Brussels levy is the need to more fairly tax digital companies that have been some of the clear winners of the Covid-19 pandemic. Unlike the EU’s last digital tax attempt, the 2021 version will be designed to avoid hitting massive multinationals affected by the OECD proposals.
It is also seen as a potential way of raising additional revenue earmarked to help the commission repay its €800bn Next Generation EU borrowing.
The trouble is that with G7 ministers discussing a rollback of unilateral digital tax measures if the OECD process succeeds, the EU’s proposed levy risks becoming a political hot potato — particularly with the US.
Asked about the proposal yesterday, Ursula von der Leyen, commission president, insisted the EU’s digital levy did not conflict with the international corporate tax proposal aimed at sharing taxing rights on massive multinationals.
“They are more complementary,” she argued at a press conference, adding that the EU’s levy would be non-discriminatory and would not lead to double-taxation.
However, she said the topic was likely to come up at the EU-US summit next week, and she notably left open the possibility that a “broader solution” could emerge in the context of the talks among 139 countries at the OECD.
The commission is under pressure to push ahead with the levy from the European parliament, which has been a longstanding cheerleader for bespoke sources of EU revenue. But it will have a much harder time convincing sceptical member states of the need for a new business tax — digital or otherwise.
Many diplomats suspect the digital levy — which is expected to be proposed by the commission next month — will fall by the wayside, as with so many attempts to establish EU taxes.
“The EU digital tax is a sideshow when we are trying to impose rules on the biggest companies in the world,” said a senior EU diplomat.
“The world has changed since 2018 and when Trump was blocking OECD talks. Member states will look at the commission’s proposals with fresh eyes and a fresh context.”
What is your view on an EU digital tax? To take the poll, click here. (Results of last week’s poll about the G7 corporate tax deal can be found here.)
MEPs have set the ball rolling on a process that could lead to them suing the European Commission for dragging its feet on activating the bloc’s new budgetary rule of law mechanism, writes Mehreen Khan.
The rare censure, which involves triggering Article 265 of the EU treaty, was approved by a clear majority in the European parliament yesterday. The vote sets in motion a process that could see the commission end up in court if it fails to make moves to trigger the rule of law mechanism within the next four months.
MEPs who want the instrument up and running have Hungary’s Fidesz government firmly in their sights. They are pressuring the commission to use its new powers against Prime Minister Viktor Orban, who has been accused of misusing the substantial pot of money the country receives from the EU budget.
Next year, “a new parliament will be elected in Hungary and EU funds will be misused by Viktor Orban to rig the outcome of the elections”, said Daniel Freund, a Green MEP. “If the commission continues to remain inactive, if it continues to delay sanctions against Orban, this will have far-reaching political impacts.”
To ward off criticism, the commission has promised to come up with “guidance” on how best to use the instrument over the summer, with a view of launching its first cases against governments by autumn. If those efforts come good, the censure process will stop in its tracks.
While some leaders in Europe remain lukewarm on China, popular sentiment has certainly cooled, particularly in Germany, a recent survey by the German Marshall Fund shows. A negative view of China also seems linked to age, with younger respondents viewing Beijing more positively.
Hostilities from Russia’s seventh year of undeclared war against Ukraine have spilled onto the pitch at Uefa’s European championship football tournament, which kicks off today, writes Roman Olearchyk in Kyiv.
Ukraine may have won a warm-up round against Russia — at least when it comes to the design of its national team jerseys.
Europe’s governing body Uefa announced yesterday that it had dismissed most of the complaints made by Russia’s football federation about elements of the Ukrainian shirts.
One of the contested elements was a map of Ukraine that includes Crimea. Russia illegally annexed the peninsula in 2014 before fomenting a proxy separatist war in Ukraine’s eastern regions that smoulders to this day.
The other elements Russia complained about were two slogans — one printed on the backside of the shirts reading “Glory to Ukraine”, a chant that Ukrainians often respond to with “Glory to the heroes” — a line emblazoned on the shirt’s inside.
Russian officials argued that these slogans were used by Ukrainian nationalists and second world war Nazi collaborators.
The slogans, which have been more recently adopted by the Ukrainian military, date back more than 100 years, according to some historians. They have become increasingly popular among Ukrainians since the 2014 revolution, during which protesters chanted the phrases at toppled pro-Russian president Viktor Yanukovich.
In a Telegram post this week, Russian foreign ministry spokesperson Maria Zakharova argued that the inclusion of Crimea as part of Ukraine amounted to the “illusion of the impossible”. She also compared the Ukrainian slogans to Nazi greetings.
Ukraine’s president Volodymyr Zelensky responded in an Instagram post in which he held up the shirt and wrote: “The new uniform of the national football team of Ukraine is definitely special . . . It features several important symbols that unite Ukrainians . . . Our country is one and indivisible. Crimea is Ukraine.”
So what was the Uefa verdict?
The football association yesterday asked Ukraine to remove the “Glory to the heroes” slogan on the inside of the shirts, because it was “clearly political in nature, having historic and militaristic significance”.
However, “Glory to Ukraine” on the back can stay, and as can the map that includes Crimea, Uefa said, explaining that the peninsula belongs to Ukraine as per international law.
Russia’s sports minister Oleg Matytsin welcomed the decision and said it was “the only correct decision that restores justice”. (Even if just one of the Russian complaints was taken on board.)
While the jersey design match was won 2:1 by Ukraine, on the pitch, the chances the two teams will meet are quite small: they are not in the same group and would need to qualify for the quarter-finals to potentially face one another.
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