Forget the Financial Transaction Tax (FTT), beware of the (DTT)

The European Commission has since 2010 tried to introduce the Financial Transaction Tax, FTT. They have until now failed to establish unanimous support for their proposal and ten countries have then tried to implement the tax themselves. As a Swede, with experience from the disastrous experiment with a FTT in the 1980s,  I can only congratulate all Europeans if this process also  fails.

But the recent criticism against large US internet group have given the EU Commission new inspiration on how to raise taxes on transactions in the union. In a new consultation from the Commission, ”Fair taxation of the digital economy”, one proposal is to introduce a Digital transaction tax: a tax that applies early in the value creation process (collection of personal and other data). The consultation is completely focused against digital business. Let me give you some scary examples from the consultation:

  • Unitary tax: Introduce a tax on a share of the world profit of digital companies which would be attributed to each country on the basis of the percentage of revenue earned in that country.
  • Withholding tax on certain types of digital transactions: Introduce a withholding tax based on payments to non-resident providers of goods /services ordered online.
  • Tax on revenues from certain digital services: Introduce a tax based on the revenue from digital transactions concluded remotely with a non- resident entity that has a significant economic presence (e.g. revenue from the sale of online advertising).

Following the discussion in Austria, France, Germany and most recently in Italy it is evident that politicians in these countries want to punish US businesses. For them large internet group is the same thing as US corporations. They never seem to have thought that these taxes would hit European corporations.  

European Competition Commissioner Margrethe Vestager recently told media that the European Union will take measures to tax US tech giants if the international community doesn’t agree to a new system early next year. “if there’s no international answer to this issue by spring next year, we’ll produce our own proposal for new EU rules to make sure digital companies are taxed fairly.” (Euractiv November 21).

Some countries are even more keen to tax internet businesses.  Italy plans to immediately introduce an “equalisation tax” of 6 percent on sales to Italian buyers. According to Paolo Cellini, a professor of digital economy at Luiss university in Rome, A web tax is almost unavoidable and politically very attractive. Cellini also tells the FT that “US technology companies were a “perfect target”. “They don’t pay taxes. They don’t create employment. They take money abroad and they are foreigners.” (Financial Times November 20)

In Uk, Philip Hammond,  in his Budget speech last Wednesday introduced a new withholding tax on royalties paid to low-tax jurisdictions relating to UK sales. The rule, which goes further than legislation elsewhere in Europe, aims to raise more taxes from foreign tech companies (Financial Times November 22).

It is popular in Europe to blame the current US administration to be protectionist. And that is indeed true. But the same goes for the EU Commission and many member states. Please take a look at the Consultation, ”Fair taxation of the digital economy”, and then talk to your politician. Hopefully not all European politicians have as low expectations on the digital economy in the EU as the European Commission.

 

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