Take a second and look up from your phone. What do you see?… If I had to guess, it would be other people looking down at their phones. If that doesn’t scream digital economy, I don’t know what does. The global market is growing and becoming more and more complex. Companies are reaching out and impacting hundreds of countries and profiting from them. International tax law for most countries is now out dated. So, just like new technology replaces old technology, new tax laws that keep up with the ever-evolving global market are now going to replace the out dated tax laws. As we all know, and are tired of hearing about, the United States already started tax reform with the Tax Cuts and Jobs Act. Europe (Don’t stop reading just because I said Europe!) is now trying to adjust and bring in a new type of tax…the Digital Tax.
The European Commission’s proposed digital services tax is intended for technology giants – a.k.a. Google, Uber, Amazon, Apple and more. You’ve seen the news stories of these tech giants battling lawsuit after lawsuit regarding tax strategies, tax shelters and tax homes. Europe is tired of the battle and is ready to evolve the tax law by bringing in a digital tax.
Europe’s argument is that there is a disconnect between where value is created and where taxes are paid. Currently, most technology giants are paying taxes in the countries where their physical location is set up. In today’s world you can set up shop anywhere and then make money anywhere… especially with the digital economy through things like marketing. They argue that users (Google users, Facebook users, etc.) are a contributing factor when looking at value, which is hard to deny when you see things going viral on the internet due to sharing, likes, clicks, views etc. Now think, computer ‘cookies’ and ‘canvas fingerprinting.’ (Yeah… you probably must look this one up like I did.) These are ways to track our movements on the web and provide advertisements that relate to you! I go to REI.com and next thing I know I have ads for North Face, REI, Bass Pro Shop – anything related to camping or outdoors. Clearly, I added value to someone’s marketing campaign… hence Europe’s argument.
Their proposal is to impose a 3% digital tax on revenues from the following types of services:
- Online placement of advertising
- Sale of collected user data
- Digital platforms that facilitate interactions between users
To keep the focus on large companies, they added a threshold amount. This digital tax would only apply to companies in the above lines of business with total annual worldwide revenues of €750 million or more AND EU revenues of €50 million or more.
This is a current worldwide discussion and everything is still subject to change, but the point being… the global market has changed and will continue to do so. The dream of tax simplification is just that… a dream. Tax laws will always be adapting to these changes and as things get more “global,” tax laws will get more complex and cumbersome.
If you’re interested in learning more, visit the European Commission website, which talks a little more about Fair Taxation of the Digital Economy.
Chris Morrison, CPA MAFM