September 28, 2017
Guest post by Bill Wirtz, Policy Analyst for the Consumer Choice Center
In a recent move by four EU member states, the European Union has brought up the issue of digital taxation, by suggesting that online business services should be taxed on turnover, not on profits. Based on an initiative by the finance ministers of France, Germany, Italy and Spain, these four governments demand action of the Estonian Council presidency for the institution of such an ‘equalisation tax’.
As of now, many large online businesses, including the multimedia giant Amazon, have preferred to be domiciled in low-tax EU member states in order to avoid French or Belgian corporate income tax rates. In administrative court rulings in July, the tech success story Google had escaped a €1 bn bill by the French taxman. The court had ruled that the US company could not be taxed on the activities of its service AdWords, since it has no “permanent establishment” in France.
Describing it as a matter of “fairness”, France’s finance minister Bruno Le Maire has called for European unity on this issue. However, this latest proposal begs the question how sensible of an idea such a digital tax would be, and at which unintended costs the apparent fairness would come. Several EU member states have already raised their concerns facing this issue: Malta’s Finance Minister Edward Scicluna has expressed his hopes that “this is not another financial transaction tax”, knowingly that he publicly and vehemently opposed the latter as a Member of the European Parliament. The Luxembourgish government has taken the position that tax measures of this scale need to be coordinated on a wider range than just the European Union, and that it should be a G20 topic. The Danish Finance Minister Kristian Jensen was equally sceptical of the idea: “I’m always sceptical about new taxes and I think that Europe is taxed heavily enough.”
In a recent meeting in Tallinn, the Estonian presidency played down the disagreements and pretended member states seemed to agree that new common rules are necessary. However, the sceptics of a joint tax reform of digital sales have also been joined by the UK, Sweden and the Czech Republic. In an attempt to vouch for the tax which seemed rather desperate, French minister Bruno Le Maire brought up Emmanuel Macron’s win against the far-right in France, as a reason to accept the reform.
In any way, this bargaining tactic could drive up one bill, and that is the one of the European Consumer. Very often, increases in company expenditure in indirect taxes, which this would inevitably imply, would raise prices for consumers around the continent. VAT has long been recognised as the tax which hits poor people the hardest, yet many EU countries now prefer to introduce higher levels of indirect taxation. Just at a time when especially low-income earners can have simpler access to many products because of the internet, it seems cruel to restrict their purchasing power.If people such as Bruno Le Maire want to talk about fairness, then they should first address the unfair situation of those people who cannot support indirect tax increases. If we care about those with low wages, we need a more competitive marketplace in which companies are in a price race, not a race to optimise astronomical tax burdens.
With several countries opposed to the proposal of a number of EU members, and the French government visibly hurried to satisfy its internal political demand for this reform, EU leaders are unlikely to find a long-lasting agreement in December. And rightfully so.
The future of Europe’s market economy undeniably lies in the digital sector. The idea of attempting to massively tax online businesses is not a promising objective, neither for the states nor their consumers. It belongs in the dustbin of creative political EU integration.