September 29, 2017 / 3:22 PM / a year ago

Lagging U.S. online giants, Europe split over web tax

* EU leaders meet in Tallinn for digital summit

* Discussed cyber threats, taxing online firms

* Countries divided on digital tax

By Julia Fioretti

TALLINN, Sept 29 (Reuters) - European Union leaders meeting on Friday to discuss how to boost the region's online economy appeared divided where to put the emphasis: supporting the industry or taxing the mostly American companies that currently dominate.

Being Europeans, they also looked at a compromise.

Smaller EU members such as Ireland and Luxembourg, which host many online businesses, are worried taxes would hurt their competitiveness without a global solution.

"People moan that there is no European Google, that there is no European Facebook, that there is no European LinkedIn, but my view is that if you want those things in Europe and you want those types of companies to generate in Europe it's not through heavy taxes and high regulation that you achieve that," Irish leader Leo Varadkar told reporters, arriving at the meeting in the EU's would-be "digital capital" of Tallinn in Estonia,

There needs to be a consensus among EU countries to implement tax reform, though the European Commission has raised the possibility of stripping members of their veto rights on tax issues, a move Ireland has said it will resist.

However, Italian Prime Minister Paolo Gentiloni said countries that agreed digital multinationals needed to pay more tax should move ahead separately under a procedure known as "enhanced cooperation," which allows a minimum number of ten EU states to apply the tax on their own.

"Since Europe has to face giants that are mostly not European giants in the digital industry, it must very seriously consider the issue of harmonising a fair taxation of these digital giants that don't have factories or tens of thousands of employees like the giants in the past but which nevertheless make an extraordinary turnover in our countries," Gentiloni told reporters as he arrived.

"There is a Commission proposal, we need to advance on that proposal, but individual countries not only can but should work in coordination with each other which also means enhanced cooperation."

A Spanish government official struck a more cautious note, saying an EU-wide solution remained the best option and Ireland could be encouraged to come on board.

"We will get there. There is a very strong drive," the official said. "We will have to find a way to tax. Not to tax more but to tax the digital companies."

The official added a tax on turnover instead of profits could be implemented by individual countries without even resorting to enhanced cooperation.

Separately, a source in the French president's office said the Irish prime minister would come to Paris at the end of October where the subject would be raised.

The Commission estimates the effective tax burden for digital companies is 10 percent, compared with the 23 percent for bricks-and-mortar companies.

In the longer term, the EU wants to change existing taxation rights to make sure digital firms with large operations but no physical presence in a given country pay taxes there instead of being allowed to reroute their profits to low-tax jurisdictions. (Additional reporting by Marine Pennetier; Editing by Mark Potter)

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