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EU digital taxation is coming

Taxation on digital services will hinder innovation

Taxation on digital services will hinder innovation

Where there is money, there is legislation. In this case, the European Union is targeting all revenues made by digital services within the EU. And they are coming for the big tech multinationals fast.

By the end of this calendar year, the EU wants to impose a 3% revenue tax on all digital service revenue made in the EU. This would mean an additional tax of hundreds of millions of Euros for Facebook, Google and the likes.

The main problem at the moment is that these US and Asian innovators are taxed in the country of origin (where the company is legally situated). According to this new tax law, the revenues will be taxed based on the country in which the customer resides. Something that has been common practice within the EU for a number of years already; especially when it comes to e-commerce and cross-border (physical) transactions.

Generally a rational thing to do, but there are a few problems that come with this legislation.

Why is that a problem

  1. The European Union is not one single market, the income generated by international companies would need to be distributed “pro rata” back to the countries that deserve to receive the taxes.
  2. Taxing digital companies, generally hinders growth and the possibility to re-invest the earnings in the development of new innovations. Is it too early to tax innovators that are looking to change the way work, live and add value?
  3. This taxation is only a short term and local solution to a global problem. What we would achieve: make the EU less interesting for global innovators. The European market might be a relatively wealthy one, it is also one of the hardest to crack. This is because of its scattered and decentralized nature. In digital, there is no such thing as one central European market, but there are lots of small language areas with partial markets. Should we not focus our attention on the bigger picture here?
  4. We would also tax our own innovators – making it increasingly difficult to fund our own innovation efforts. If the idea is to protect our internal European market, we need to develop tools that do not hurt those who are trying to make a difference.

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