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Summary

The debate around how much tax digital industries should face continues to be a challenge, and discussions have been gathering momentum across the EU. The EU proposal to introduce a 3% tax EU-wide on companies with total annual worldwide revenue of €750m ($856m) and EU revenue of €50m ($57m), has stalled somewhat. It is not surprising then, that several member states have recently chosen to take matters into their own hands to level the playing field, such as the UK, France, and Austria.

Agreeing the exact scope of services that would be subject to a digital tax continues to be a challenge for regulators

As big tech companies are not restricted geographically, it can be problematic for governments and regulatory authorities to regulate them, so these providers continue to face less legislation than more traditional competitors when it comes to taxes, licensing, antitrust, and advertising. The debate around how much tax digital industries should face, in particular, continues to be a challenge, and discussions have been gathering momentum across the EU over the past year. Ovum's OTT Regulation Tracker: 2H18which records relevant publicly announced regulatory initiatives on digital services, shows how the majority of regulatory statements around large tech firms have involved either taxation or licensing, and many of the taxation announcements occurred in Europe and Latin America.

The EU proposal to introduce a 3% EU-wide tax on companies with total annual worldwide revenue of €750m ($856m) and EU revenue of €50m ($57m), has stalled somewhat. It was hoped that an agreement would be reached by the end of 2018, but this was not the case and the measure is yet to become law. Several member states still have concerns over aspects of the proposal, including Ireland, Sweden, Denmark, and Finland, which have all stated their opposition to the plan, while Germany, the Netherlands, and the UK have asked for more time to review the proposal. Difficulties lie over agreeing the exact scope of services that would be subject to the tax; however, definitions, tax collection, and administrative cooperation have so far been agreed.

Supporters of a reform to the taxation system have been accusing many large tech companies of dodging taxes by directing their profits to EU nations with lower taxation rates. This is because the existing taxation system does not capture business models that can make profit from digital services in a country without being physically present, so there have been calls for some time for this to be changed. However, countries where those tech companies have operations worry they will lose their tax revenues. Such opposing views among EU member states risk severely delaying the introduction of a suitable regulatory framework. It is not surprising then, that several member states have recently chosen to take matters into their own hands to level the playing field.

With such division among member states over EU-wide taxation rules, many are looking to introduce national initiatives instead, such as the UK, which recently announced its own plans to introduce a 2% tax on UK digital revenue from big tech companies with over £500m ($641m) in turnover from April 2020. On December 30, 2018, Austria became the latest country to outline plans to introduce a national digital tax to ensure internet giants are not able to make huge profits in Austria without paying sufficient taxes. Similar to the EU proposal, the Austrian digital tax would be 3% of revenue from advertising targeted at the Austrian market, and would be levied only on companies with revenue of more than €750m ($856m). However, there are also discussions to go further by introducing a tax on data sales (data transfers) based on the French model. The French government introduced a tax targeting digital sales linked to personal data from the large internet companies, such as Google, Apple, Facebook, and Amazon on January 1, 2019. This measure is expected to generate around €500m ($570m) in 2019 for the French public treasury, so it is understandable that this model is attractive to the Austrian government. However, such a move will surely be a concern for the EC, which has been pushing for a uniform approach across the EU. Taking unilateral action could ultimately damage the EU common market, so from the EC's perspective it is important to reach a consensus very soon.

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