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