Over dinner at an EU summit in Brussels, leaders held heated talks on the proposed tax, which is being pushed by French President Emmanuel Macron, among others, in a clampdown on tech firms.
Mr Varadkar reiterated his opposition to the tax, saying it is “flawed” on a number of fronts and could heighten tensions with the US, many of whose tech firms would be hit with it.
Under the plans, tech firms with large profits would pay the tax wherever they have a digital presence, regardless of where staff are based.
Current rules allow companies to pay tax on profits where their headquarters are located, often in countries with lower tax rates, such as Ireland.
Mr Macron has pushed for the tax since September, saying it has to be “paid where it is due, whether online or offline”. It is nicknamed the Gafa tax, after firms it could target, including Google, Apple, Facebook, and Amazon, some of which run their finances through Ireland.
The EU wants large tech companies to initially pay a 3% tax if they make money from users or ads in that country.
Pierre Moscovici, the European commissioner for tax, says 150 firms would be affected, including European, US, and Asian businesses. This could generate at least €5bn for European treasuries a year.
Speaking in Brussels as he arrived for an EU summit, Mr Varadkar told reporters the levy would also pitch the EU against the US.
He said: “We also need to get it right and we think the proposal put forward by the commission is flawed on a number of accounts. I think it targets US companies and that will no doubt result in a reaction from the United States — they have already indicated that.”
Such a levy would be better across many countries not just in Europe, said Mr Varadkar, outlining problems with it.
“It is also based on where sales occur rather than where profits are made or value is created,” he said.
“So there are a number of problems that arise with it and also it is proposed only to happen on a European basis and most countries believe that if we are going to do something like this we should do it on an OECD basis or a G20 basis because there is no point in Europe proposing a tax on itself that may only hand an advantage to countries that are not in the European Union or even countries that are leaving the European Union.”
Mr Varadkar said opposition is mounting against the tax, and is believed to include German Chancellor Angela Merkel, who met Mr Varadkar earlier this week.
He said: “So, certainly speaking among other heads of government, there are at least 10 if not more than 10 countries that have lots of questions, very many questions to ask about this proposal, lots of reservations about it.”
There are fears Ireland would lose revenue and jobs if tech taxes were reformed. The move is also viewed as an attack on Ireland’s corporate tax levels.