The taxation of digital companies such as Google or Facebook is creating a big stir throughout Europe. Whilst longstanding analogue industries pay up to 23.5 % tax, at just under 9.5 % on average, digital companies are taxed at a significantly much lower rate. On 8th September 2018, the Economic and Financial Affairs Council ECOFIN, which is made up of Europe’s Finance Ministers, met in Vienna to debate the future of digital taxation. Similar to the EU Commission, Austria is also interested in a quick solution and would like to have reached agreement on the digital tax by early 2019. However, it remains doubtful whether it is a sustainable tax. Apart from that, a public debate of the Special Committee for Financial Crimes, Tax Evasion and Tax Avoidance (TAX3) on this subject took place in Strasbourg on 10th September.
On 29th August 2018, the European Parliament's Committee on Economic and Monetary Affairs (ECON) discussed the two current proposals by the EU Commission on the taxation of digital companies, whereby two different proposals were negotiated. One is construed structurally and long-term in scope, the other one is interim based. Digital services shall above all be taxed, where these services are delivered; hence, in the respective country of the user. Until now, this has only been possible in case of physical presences of foreign companies in a country. In the negotiations of the European Parliament and the Commission, this model is referred to as “user-value-creation” and represents the basis of the so-called “digital services tax” (DST). It predominantly concerns companies with an annual turnover of and above Euro 750 million and an EU-wide turnover of over Euro 50 million. The DST has been planned as an interim solution, whereby the fear remains that it will become a poor long-term makeshift solution. In particular, as the tax is only 3 %, it would generate a yield of Euro 5 billion for the EU. On the other hand, these contributions can no longer be regarded as peanuts by companies such as Google, Facebook or Apple. Just to remind us: Amazon's revenue in the last quarter totalled Euro 2.13 billion. According to proposals by the EU Commission, companies such as Spotify, Netflix or gaming platforms should not be taxed in the first place. Taxation in respect of selling user data has been considered and was demanded especially by the S&D faction in the ECON Committee.
Prior to the informal ECOFIN meeting last weekend in Vienna, the Austrian S&D Delegation voiced the opinion that one should not accept “Mickey Mouse solutions” for the digital tax. However, the Finance Ministers, who had gathered in Vienna, did not debate a more comprehensive package for tax justice, as had been considered by Evelyn Regner (S&D) in the TAX3 Special Committee; this contains “public country-by-country reporting”, the Common Consolidated Corporate Tax Base and the DTS. The Commission’s proposal on the digital tax alone is met by an icy northerly wind. The countries that reject the proposal due to their favourable business tax (Ireland and Luxembourg) are now joined by Sweden, Denmark, Finland and Malta. But mixed signals have also been emerging from Germany, since last week. However, there was agreement in Vienna that one intended to adopt a resolution by the end of 2018. If this will be unanimously adopted by all EU Council Members, - as required for tax issues - is a different matter. In his concluding statement, Finance Minister Hartwig Löger (ÖVP) called for the so-called “sunset-clause”, hence, a clause which is to expire, as soon as a solution for taxing companies has been found at OECD level. For now, it shall satisfy tax-sceptical countries and prevent a new dispute between the USA and the EU.
Who is paying?
Martin Schirdewan (GUE/NGL) raised the question both in the ECON Committee and the TAX3 Special Committee, as to how the Commission intends to prevent passing on costs incurred to end users: a worry, which is definitely shared by the Chamber of Labour. Unfortunately, the Commission’s reply was very unsatisfactory in both cases. Passing on the tax to consumers was none of its concerns; what was important, is that all companies would pay the same rate of tax. In TAX3, the Commission did not even consider to provide a reply to the question. Hence, it remains to be feared that it will be the user who fits the bill for the cost of a digital tax.