“Digital Change and Taxation - Demands from the Viewpoint of Taxpayers”

Together with the OECD, the EU is starting a new attempt at creating a separate tax for digital services. This plan is reasoned with the explanation that existing tax systems are to be made fit for the digital age, and that large digital service providers supposedly pay close to no business tax.   

It is alleged that major digital corporations like Google, Apple, Facebook and Amazon (GAFA) as well as the internet giant Alibaba (China) pay no or almost no taxes. By introducing a digital tax (DT), supposedly the digital big players are to finally be forced to pay taxes and render their fair tax contribution, so the argument of the advocates of tax fairness.

Digital enterprises have expenses and fairly distinct margins. They pay taxes and duties, directly through business taxation and indirectly through the creation of jobs liable for income tax.

Digital enterprises have disproportional growth. That is undisputable. But what is forgotten in the discussion about taxes is the fact that this growth also has direct effects on the number of employees, and that digitalisation has created many new jobs. The GAFA alone have directly enabled more 1 million people to make a living.  When looking at other corporations that also offer and sell digital goods and services, but are not yet in the focus, e.g. Microsoft or Nike, one quickly realises the dimensions of what all of this is really about.  Because in principle, every enterprise that sells via the internet is also a digital enterprise. All people employed there pay their normal taxes and duties. Therefore, there is much more at issue when discussing tougher taxation of digital enterprises

If the thought of tax fairness applies, it must really be about making sure that taxes are paid, that no taxes are evaded, and that the tax competition is not circumvented.

Where those taxes are then paid really does not matter from the standpoint of tax fairness!

A critical look at the situation therefore raises the question why the digital tax initiative relates to American and Chinese enterprises in particular? Is it maybe the worry of the EU states to not get enough of the tax pie?

The Taxpayers Association stands for fair tax competition, a fact that we cannot mention enough. Everybody has to pay his/her fair share of taxes and duties. For what is not paid by some has to be paid by the others. But what is now looming for the digital enterprises has absolutely nothing to do with fair taxation! We have calculated this for GAFA using the figures available to us. It becomes apparent that a coupling of the digital tax to the revenue and not the profit leads to a massive distortion and overburdening. For example, in 2020 the online trade giant, Amazon, had a record revenue in the amount of over 386 billion US Dollar, but only an EBT of around 24 billion US Dollar and therefore a return on sales of about 5.5 percent. As a result, the DT would lead to a total tax burden of 61 percent for Amazon.

A taxation of revenues and therefore not of actually generated profits without consideration of losses or depreciations as it is planned for the digital tax (DST) constitutes a frontal attack on the basic principles of the market economy and the taxation based on the ability-to-pay principle. For enterprises with low returns on sales it leads to disproportionally high tax burdens.

It is a fallacy to conclude a higher tax load capacity of enterprises based on surpluses, because this interferes directly with the substance as well as the allocation of reserves and own capital.

Additionally, the experiences of countries that have already implemented such a digital tax (for example Austria, France and Italy) show that such taxes are in the end flipped onto the consumers, who then have to foot the bill.

In light of the EU stimulus package presented by Ursula von der Leyen and other programmes like the “Green Deal” etc. that stipulate higher EU expenditures, loans and liabilities amounting to trillions, the discussion of introducing a EU digital tax becomes of special significance. 

The EU Commission wants the introduction of additional separate income for the EU. The digital tax is specifically named in this context. But this is not what it is there for. The discussion of a digital tax must not be about the EU taking in revenue! 

It is therefore of existential importance that we now enter into the discussion and rise to speak. It is key that the digital tax is discussed objectively and not motivated by ideology.

With every discussion and every tax reform proposal an impact assessment is also mandatory. For in the end it is the taxpayers that have to foot the bill!

Download TAE Position Paper on Digital Services Tax (Appril 2021)