Sweden, Denmark and Finland have all come out in opposition of Europe’s plans to have a tax crack-down on Silicon Valley firms, questioning the long-term benefits to the bloc’s economy.
The question of taxing the internet companies has been a long-running one, and while the European Commission’s plans might have attracted interest from headline-chasing politicians there has also been a fair bit of criticism. Of course the internet companies are against the plans, but several smaller nations have questioned the logic, while there was also an indifferent response from the highly-influential Germany.
The ‘Digital Tax Package’ presented by the European Commission essentially allows the taxation of digital activities and digital business models in the EU based on revenues. Should the rules get the green light, European and non-European companies would have to pay a 3% tax on all their European revenue from digital services, irrelevant as to whether they are profitable or not. The aim to make sure companies who are profiting off European citizens are paying a fair level of tax in those nations.
Current rules on taxation are based on the company having a physical presence in the nation. While there have been organizations who have been able to take advantage of this in the past, it was the elephant in the room. It would appear the European Commission has an issue with the rapid rise in the number of organizations who can profit from the rules, as well as the concentration in technology hotspots around the world (which are primarily outside the grasp of the European Commission).
“The proposals partly shift taxing rights to the country of the consumer or the digital user, based on the premise that these contribute to value creation in the digital economy,” states the letter signed by Magdalena Andersson, Kristian Jensen and Petteri Orpo, the Financial Ministers for Sweden, Denmark and Finland, respectively.
“This deviates from internationally established principles. Traditionally, exporting firms do not pay taxes in their export destination simply because they have consumers there. The proposal for a digital services tax means that basically all value creation is deemed to take place at the location of the consumer. Furthermore, 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.”
This seems to be the main point of the argument. The European Commission is breaking from traditional tax laws and attempting to create new precedent, which the trio argues is something which should be considered from an international level, notably the Organisation for Economic Co-operation and Development (OECD). There does need to be changes to the way in which companies are taxed in light of the rise of digital business models, but you do have to have some sympathy for the arguments of the Nordic team; the process should be managed by an organization which would be considered more impartial.
However, what should be taken into account is the bias of Sweden, Denmark and Finland. The Nordics are home to several notable organizations who have benefitted from the freedoms in the digital economy, music-streaming service Spotify is one, while gaming app developer Supercell is another. Of course these countries are going to protect their own.
What is worth noting is that not every digital business will be subject to the proposed tax rules. To be considered, the company would have to fit at least one of three criteria of generating €7 million in annual revenues in a Member State, having more than 100,000 users or over 3,000 business contracts for digital services generated in one taxable year. A second proposal will target larger organizations which are more creative with how they report revenues and also those who collect data through other means.