Nordic citizens oppose EU plans for digital tax

A digital tax on the turnover will benefit some EU countries but is it really the best idea? The Nordic countries don't think so.
1 June 2018 | 150 Shares

Finland’s Finance Minister Petteri Orpo (L) and Denmark’s Finance Minister Kristian Jensen attend an Economic and Financial Affairs Council at the European Council in Brussels on May 25, 2018. Source: AFP

Can you imagine the impact of a tax that’s imposed on the revenue of a company? Think about it for a minute.

It means, without accounting for direct expenses such as raw materials and labor and without deducting overheads like rent and electricity, you’ll be charged a percentage of whatever you earn.

If you lived in a world like that, would you be motivated to work hard and set up your own business? Or would you be incentivized to relocate your business to a place that has more suitable tax laws?

The European Union plans to introduce a tax that’s somewhat structured in this way.

Since the European Commission feels that large digital companies like Facebook and Google use their wide-geographic presence to “plan” and minimize their tax bill, they’ve proposed to tax large corporations for their digital turnover.

According to EU data, the effective corporate tax burden for a traditional company is 23 percent while digital businesses only pay 10 percent.

In fact, aggressive cross-border tax planning further cuts down that effective burden and brings it to (nearly) zero, especially when firms pick business-friendly jurisdictions like Ireland for their European headquarters.

If Google, Facebook, Apple and other multinational tech platforms can’t be forced to pay corporate taxes everywhere they operate, it doesn’t mean they should be able to get away with paying nothing, the Commission believes.

The levy is expected to be set at 3 percent and could raise up to EU5 billion (USD5.84 billion) a year for Europe’s coffers.

However, according to Reuters, finance ministers of the European Union’s three Nordic countries have urged their partners to shelve the plan saying it could damage the European economy.

“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 on Friday.

The Nordic countries, which are home to several large digital companies like Sweden-based music streaming service Spotify, said the proposed levy would go against EU interests because it would complicate international cooperation in the tax area and could trigger retaliation from EU’s partners.

According to the finance ministers, the prevailing digital tax system could use some reforms but said that this should be done at global level, by the Organisation for Economic Co-operation and Development (OECD), which traditionally leads international talks on tax overhauls.

In fact, the latter announced in March that “more than 110 countries and jurisdictions have agreed to review two key concepts of the international tax system, responding to a mandate from the G20 Finance Ministers to work on the implications of digitalization for taxation.”

However, the Scandinavian countries aren’t the only ones pushing against the tax.

Germany isn’t a fan of the proposal either. The country recognizes that a majority of the digital giants are American and that the tax might antagonize the Trump administration.

They’re also concerned that a move to tax companies based on where services are consumed, rather than where companies are located, might hit its car manufacturers in the longer term.

However, in light of the OECD’s recognized ability to mediate global tax discussions and its progress with the subject, it’s likely that the EU digital tax won’t be implemented.

The Organization has recently published a report which discusses the problems and disagreements about the existing tax structure and its thoughts and rationale about where a company should be taxable and how to allocate its profit between locations.

“We have underlined the complexity of the issues, and highlighted the importance of reaching international agreement, both for our economies and the future of the rules-based system. The OECD stands ready to accompany countries as they seek to build a common understanding of the issues related to the digital economy and taxation, as well as the long-term solutions,” OECD Secretary-General Angel Gurría said.

It hopes to have an agreed, consensus-based solution by 2020.