EU’s Digital Service Tax Faces Backlash From Member States

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Posted by Andreas Hellmann on Wednesday, August 29th, 2018, 3:54 PM PERMALINK

As ATR has reported before, the European Union is pushing for a Digital Service Tax mainly on American tech companies like Google, Facebook, Amazon, Uber and AirBnB, even if they are not physically present in the EU, potentially taxing them close to €5 billion Euro.  Companies with annual worldwide revenues above 750 million Euro ($924 million) or yearly “taxable” revenues above 50 million Euro in the EU could face a 3 % tax on their turnover—in most cases the gross revenue. The plan would erect a new tax regime, as the tax would be levied by the countries where the digital users are located, not based on where the companies are physically present.

Now the tax that Brussels insiders openly call "Google tax" is facing  additional backlash from the most powerful EU member state Germany as politicians fear it would backfire and hit the country’s exports and would fuel the already rocky relationship between the EU and the U.S. :

“We have to be concerned that this kind of tax being considered could be used by countries such as India and China to tax German exports—cars for example,” said Lutz Lienenkamper, the finance minister of the Germany state North Rhine-Westphalia.

The German auto industry namely Volkswagen, Audi, Porsche, Mercedez-Benz fear the impact of the tax as they employ about 800,000 people with an annual turnover of about 404 billion euros and are radically increasing their digital business models.

Their message was heard: Not only did new German Minister of finance Olaf Scholz failed to speak in favor of the tax during the EU finance minister meeting but he also did not endorse it during a joint press conference with French Economy minister Le Maire.

Almost immediately after the release of the proposal, Nordic EU member states opposed the EU plans, later joined by Ireland, the Netherlands, Luxembourg, Belgium, and Greece:

“A digital services tax deviates from fundamental principles of income taxation by applying the tax on gross income, i.e., without regard to whether the taxpayer is making a profit or not,” Swedish Finance Minister Magdalena Andersson, and her counterparts from Denmark and Finland, Kristian Jensen, and Petteri Orpo, said in a joint statement.

Their concerns are that the digital service tax is a revenue tax, which means that the tax will also be charged when the company makes a loss and high and low margin companies would pay the same level of tax.  Furthermore, the tax might not be creditable against corporate income tax in the country where the company is based, as ordinarily only profit taxes can be taken into account as a foreign tax credit, exposing the risk of double taxation.

This isn’t the end of this threat though.  We’ll have more on the other ways this foreign tax threat is targeting Americans over the coming weeks.

Photo Credit: Stock Catalog

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