"The U.S. firmly opposes proposals by any country to single out digital companies. Some of these companies are among the greatest contributors to U.S. job creation and economic growth. Imposing new and redundant tax burdens would inhibit growth and ultimately harm workers and consumers. I fully support international cooperation to address broader tax challenges arising from the modern economy and to put the international tax system on a more sustainable footing."
- Steven Mnuchin, US Secretary of the Treasury, 16 March.
"There is no consensus on the merits of, or need for, interim measures, and therefore this report does not make a recommendation for their introduction."
- OECD BEPS interim report on "Tax challenges arising from digitalisation", 16 March.
As we reported last week, the European Commission is going to unveil its proposals for taxing the digital economy on Wednesday.
But Irish officials went into the St Patrick’s holiday weekend looking rather pleased with themselves, rather than fearful.
And why not?
On Friday, both the OECD and the US Treasury Secretary put the boot into the Commission’s plan for an interim turnover tax that would hit mainly US internet giants.
And that suits the Irish just fine.
It has been the Irish position for years that the question of taxing the digital economy needs to be answered by an international consensus, guided by the OECD.
The heart of this argument is that trying to tax the digital economy without having the US on board is pretty pointless, as that is where most of the internet giants are based (almost all the others are in China).
The question of modernising international tax rules to capture the value created by digital activities was set as action 1 (of 15) in the BEPS agenda of the OECD back in 2011.
It remains the main unfinished business of the BEPS process (which has otherwise made remarkable progress).
The BEPS bureaucrats, led by Pascal Saint-Amans, have been asked to come up with a plan to tax the digital economy by the summer of 2020.
There is no consensus on how to proceed, but an interim report published on Friday (a month ahead of schedule) sets out the differences between counties that need to be bridged.
By mapping out the terrain, Mr Saint-Amans and his colleagues hope they can use the next two years to narrow differences between countries, and arrive at a consensus on digital tax that will hold for the long term.
And the consensus building goes beyond the OECD – this is an "inclusive process", so there are 110 countries involved, all apparently giving their blessing to the OECD in its quest to update the rules of a game that largely date from the pre-television age, to account for the value creation of companies like Facebook and Uber.
On Friday Pascal Saint-Amans said his message to G20 finance ministers, whom he will brief in Buenos Aires on Tuesday, is that "there is a global agreement to work on this issue, and work on it quickly".
So the ground is shifting. But not quickly enough for some countries.
Last September France, under its new President Emanuel Macron, threw its weight behind the idea of an interim tax measure in Europe.
The idea was that a levy on digital companies operating in Europe would help to stem the losses national treasuries say they are facing from base erosion, and would put pressure on the "foot draggers" they say are holding up a global solution.
The French were joined by nine other countries when they pushed out the idea at an informal Finance ministers meeting in Tallinn last September.
Although there were divisions among finance ministers, the block of ten was sufficiently powerful to get the December Ecofin to agree to let the commission to come up with a legislative proposal for a temporary digital tax.
That is what we are getting on Wednesday.
Along with a less detailed proposal for a long term solution, that has a similar "landing zone" to the OECD’s report due in 2020.
Essentially a powerful block of European countries are trying to force the pace in developing a new form of taxation for the new forms of economic activity carried out by digital companies.
Although Ireland is seen as one of the chief opponents of the plan, it would not be correct to say that the Irish state opposes the idea of taxing digital activity. Its more a question of how its done. Because it will be done eventually.
But there are some really profound conceptual and technical (in the taxation sense) issues that have to be worked out first.
The OECD’s interim report looks at the various business models of "digital companies" to see how value is created. The most interesting element of this is the work on how user participation creates value for certain types of internet based companies, and the discussion on how – and indeed whether - this value is taxed.
Diplomatically, the OECD says the "members of the inclusive framework on BEPS" are split into two camps. (This allows countries –especially small ones - to hide inside the bigger battalions).
One camps says that user participation – whether through "likes" on Facebook, uploading video clips to You Tube, or writing Tripadvisor reviews – is a unique and important driver of value creation.
It is, after all this user participation that generates vast quantities of data that the big internet companies analyse to sell targeted demographics to advertisers.
These companies have figured out a way of turning user interaction with their technology into money.
The user activity is the source of the profit, so that activity should be taxed (and in the EU plan, taxed where the users are).
The problem is that the nature of this type of business means it is not really captured in existing tax rules.
They say that companies should pay tax where they have a "permanent establishment" – a bricks and mortar presence where activity takes place.
But internet companies can serve customers all over the world from one or two locations on the planet. They can have, as the OECD puts it "scale without mass".
And from that we have the problem of where exactly these companies should pay tax. The old rules say the tax should fall on the "mass", wherever it is located: the new ideas revolve around trying to tax the "scale" – hence the concentration on where the user activity takes place.
The opposing camp says sourcing data from users is not an activity to which profit should be attributed (even if the data is valuable, which nobody denies).
In this view, user sourced data should be regarded like other business inputs sourced from third party suppliers in the business chain (like electricity or broadband access).
This camp says the data generated by user participation should be treated as transactions: The user supplies data – through uploads, reviews etc – and is compensated by the technology company in the form of providing, for example, data hosting (dropbox), email services (gmail) or digital entertainment (YouTube).
On Friday the US outed itself as a member of this camp, via Steve Mnuchin’s pre-emptive strike against the EU plan.
Some in the opposition camp do accept, however, that user generated data could be recognised as a valuable intangible asset of a business.
And there is a whole other debate out there about how intangible assets should be treated from a tax point of view. (As an interesting aside, the OECD cites research showing that new filings for Intellectual Property rights is concentrated in Asia, which accounts for 96% of Utility models, 68% of industrial designs, and 62% of Patents.
In 2015 China led the way in patent filings with 38% of the global total, followed by the USA with 20%, Japan with 11%, Korea with 7.5% and Europe with just 5.5%).
The OECD notes that "the location in which a business’ intangible assets are controlled/managed can therefore have a material impact on where that business’ profits are subject to tax".
Which sheds some light on the reasons for that Tsunami of intellectual property imports into Ireland in recent years, that helped propel the national accounts into "Leprechaun Economics" territory.
So Ireland faces a multiplicity of issues related to both mass and scale of internet companies and their operations here.
They come on top of the usual issues about the Irish tax regime and its best known component, the 12.5% rate of corporate income tax. And the Commission intends integrating its digital tax ideas with its long running Common Consolidated Corpration Tax Base (CCCTB) ideas.
Which could be further delayed as a result.
The OECD hopes it can create an international consensus on how to tax this new realm of economic activity by summer 2020.
This European Commission’s mandate ends in November 2019. Although the Commission and a powerful block of member states have worked hard to build up a head of steam on the digital tax issue, the OECD and US interventions show that Ireland is not a lone voice on the issue.
And it is unlikely to be a lone voice at next week’s EU summit either.