EU Leaders Consider Tougher Taxation of Online Service Providers

Taxation, a digital single market, telecommunications rules and data protection are all on the agenda

Tougher taxation of providers of online services will be on the agenda when European Union leaders meet to discuss the digital economy for the first time on Thursday.

Leaders will also discuss the creation of a so-called digital single market with no barriers to e-commerce or the delivery of online services, and with the same rights for residents of all E.U. member states. Reform of the telecoms sector and data privacy laws are also likely to come up.

"We need to build this digital single market in a manner that is consistent with our European values. That includes making sure that those who operate in the online world do not escape from fair taxation," said European Commission President Jose Manuel Barroso in a statement.

To that end, the Commission announced on Tuesday that it was setting up a high-level working group to examine taxation across the digital sector. According to the Commission this sector is particularly rife with tax avoidance.

France also wants to examine a possible tax on so-called over-the-top service providers, which deliver services using the Internet connections provided by other companies. Such services include search engines and social networks, leading the proposal to be nicknamed the Google tax.

Ahead of the Summit, tech entrepreneurs from music streaming service Spotify, Angry Birds developer Rovio, Tuenti, The Next Web, Atomico and others, presented the President of the European Council, Herman Van Rompuy, with a 22-point manifesto for getting Europe's digital market going again.

"Entrepreneurship has not been cultivated in an effective or systematic way over here in Europe. Boosting European startups requires more than just a change in policy. It requires a change in mentality. The truth is, there could be many more technology businesses that start in Europe and become globally successful," they said in an open letter.

Among the 22 proposed actions is the suggestion that companies and E.U. governments should buy more from smaller businesses, something that is currently not happening. A recent study by OpenForum Europe found that 17 percent of all public procurement tender notices issued contained an explicit reference to a specific brand -- usually Microsoft. This is in direct contravention of the European Commission's guidelines on public procurement, OpenForum Europe said.

"I think these are excellent ideas. We need to give a voice to the entrepreneurs of Europe. I hope that all European leaders will take their suggestions to heart so that we can change mentalities about startups, entrepreneurs and global leadership," said E.U. Digital Agenda Commissioner Neelie Kroes.

But analysts point out that simply endorsing a single market in telecommunications and making declarations of intent will not be sufficient. "The European Council must define concrete actions to remove all obstacles that hamper ICT availability and usage in order to achieve the objective of completing the Digital Single Market by 2015," said Romain Pardo analyst at the European Policy Centre think-tank.

However this is the same Council that slashed a budget for extending broadband networks to underserved parts of Europe, the Connecting Europe Facility, by a!8 billion last April.

Finally the Council will probably have to address data protection and the international spying scandal.

A landmark vote on the reform of Europe's data protection laws took place on Monday opening the way for the European Parliament to begin discussions with the Council about the new Data Protection Regulation.

Members of the European Parliament including Sophie In't Veld and Jan Philipp Albrecht have called on Council leaders to take action on the alleged mass surveillance of E.U. citizens' data by the U.S. National Security Agency.

Many national leaders are likely to shy away from dealing with this, but France will want to discuss it following recent claims that the NSA spied on millions of phone calls in France.

Following allegations that the NSA had also spied on European citizens financial transactions, Parliament voted on Wednesday that the E.U. should withdraw from the Terrorist Finance Tracking Program, an agreement to share financial data with U.S. authorities. Parliament's vote will make it harder for the national leaders to avoid the issue.

Follow Jennifer on Twitter at @BrusselsGeek or email tips and comments to jennifer_baker@idg.com.

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