New reports confirm Ecommerce Europe’s concerns on the Digital Services Tax

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A   Report    recently published by Copenhagen Economics  and  the   opinion (in German)  of  Scientific Advisory Council of the German Ministry of Finance  on the Commission’s Proposal to introduce an interim Digital Services Tax (DST)  confirm Ecommerce Europe’s  concerns  on the  DST.  

The Copenhagen Economics’ report  highlights three main findings. First, the rationale behind the DST does not reflect the evidence that digital firms pay average corporate tax rates. Second, the Impact Assessment (IA) for the DST does not fully consider the substantial distortions and costs to EU consumers and firms  (especially SMEs)  from this new tax. Third,  the  actual revenues from the  DST  are likely to be significantly lower than suggested since the revenue estimates are static and optimistic. The report concludes that there are no evidence or economic arguments  favoring  moving forward with the DST, warning that the DST could undermine the development of the digital economy in the EU.  

Ecommerce Europe  argues  in its position  that the  EU merchants and, ultimately, consumers will bear the economic burden of the DST. This is  also  confirmed by the  report, which  claims that  the assumption in  the IA that  digitalized  companies affected  by the tax  will largely absorb the costs is not supported by empirical research.  Thus,  the DST will  ultimately  harm EU consumer welfare. 

Furthermore,  Ecommerce Europe  believes  that  the DST will disincentivize expansion of businesses and further investments, with detrimental effects to EU competitiveness  with  job losses as a consequence.  The  report also supports this argument as it claims that the DST will  distort and thus slow the further  digitalization  of the EU economy.    As a result, EU companies will lose market shares. 

In addition, Ecommerce Europe  thinks  that any change in the basis of taxation should be done in a structural way and pursued at global level through the OECD, not  individually  by EU  member states and not even at EU level, since  individual initiatives  will likely  delay the adoption of a global solution.  Copenhagen Economics  also  believes that an EU DST may risk making an international consensus-based solution less likely.  Moreover, Ecommerce Europe  agrees with  Copenhagen  Economics  on the fact that the DST will impose disproportionate administrative burdens  not just  to companies but also  to  national tax authorities,  which will have to set up new systems to handle  and audit  the new tax.  

At the same time,  the Scientific Advisory Council of the German Ministry of Finance has submitted its negative opinion on the  DST Proposal. The Advisory  Council  understands that the Commission’s DST proposal would also be a way to prevent fragmentation of the EU internal market that could result from unilateral solutions of individual Member States. Nevertheless, the Advisory Council has serious concerns regarding the economic effects of such a tax and recommends not to support the Commission’s DST proposal.  

The Advisory Council stresses that the DST creates a break with the existing international business tax law order and believes that the unilateral creation of such a tax is also incompatible with the intergovernmental cooperation based  on the  BEPS project of the OECD. In brief, all the arguments raised by Ecommerce Europe against the DST can be found in the opinion of the Advisory Council, which specifically stresses the threat of unwanted double taxation that the DST would cause, its worrying hybrid character, equity issues, adverse economic side effects i.e. young companies often with low profit margins or that have losses which would still have to pay the DST, risk of retaliation from third countries.  

More information on Ecommerce Europe’s  position  on the DST can be found in our factsheet. 

Click   here    for the Copenhagen Economics Report. 

Click   here  for the opinion of the Scientific Advisory Council of the German Ministry of Finance 

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