Ecommerce Europe wrote to Commission President Juncker on the taxation of the digital economy

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On 5 March, Ecommerce Europe wrote a letter to the President of the European Commission, Jean-Claude Juncker, and all the relevant Commissioners, after having seen a leaked document containing parts of the Commission’s plans on the taxation of the digital economy.

Through its 20 national e-commerce associations, Ecommerce Europe represents the interests of more than 75,000 companies selling goods and/or services online to consumers in Europe. Whilst Ecommerce Europe supports the harmonization of the corporate taxation base (the CCCTB) initiative, we have become concerned that the Digital Services Tax (“DST”) that the Commission is preparing may have a detrimental effect on European merchants.

This concern is based on a preliminary document leaked at the beginning of March and Ecommerce Europe will still need to see the final text of the proposed Directive and evaluate it. Nevertheless, based on the available information, Ecommerce Europe fears that the measure may disproportionately affect Small and Medium Enterprises (“SMEs”). The measure will place Chinese and other non-EU merchants at a direct and immediate advantage over EU merchants, thus leading to job losses in the European Union.

Whilst we understand the DST measure is to achieve a redistribution of taxable profit in certain business models, including online transactions through intermediaries, Ecommerce Europe is concerned with the inclusion of a revenue-based tax on online marketplaces. EU SMEs use marketplaces to grow their businesses both domestically and internationally. These businesses are low margin and engaged in the sale of physical goods. Whilst clearly not the policy intent, the DST will undoubtedly have the effect of eroding growth and market share for EU SME’s and instead favor non-EU SME’s using these services.

Given the role that marketplaces play in helping European merchants to sell in the EU and to export around the world, the DST would constitute an export tax. The tax would increase the cost base of European merchants compared to Chinese merchants, and the EU merchants would be at a cost disadvantage. We do not believe that the EU should be introducing a measure that discriminates against EU SMEs in favor of non-EU merchants, or a measure which increases the cost base of SMEs trading in the retail of physical goods, as this is typically low-margin, with little or no ability to absorb such cost increases.

EU SMEs selling low margin physical goods have been at a competitive disadvantage to their non-EU competitors for a long period due to the market distortion created by the Low Value Consignment Relief (LVCR) rules. Ecommerce Europe is therefore pleased to see that the EU took action to remove the LVCR as of 1/1/2021, however the DST measure will step in its place to create a lack of level playing field once again for EU SMEs.

Ecommerce Europe believes that the scope of the DST measure should be reconsidered further to a detailed Impact Assessment with regard to the effect on European SMEs. Intermediation in the trade of physical goods is different from intermediation in the services sector, where margins tend to be much higher. For trade in physical goods, there is a greater degree of substitutability, and the global nature of e-commerce means that a cheaper Chinese offer can easily replace a more expensive European offer.

Ecommerce Europe wants to stress that we are still currently considering different solutions and approaches with regard to the DST and its scope. However, at a minimum, Ecommerce Europe calls on European policymakers to require EU Member States to ensure that a full tax deduction is available for any DST paid by businesses directly in scope of this tax. It is Ecommerce Europe’s objective to work together with all policymakers involved, both at European and national level, to ensure that taxation in the EU is indeed fair and efficient.

The European Commission is supposed to present its proposal on the digital services tax on 21 March. Ecommerce Europe will analyze the text and together with its 20 national members will prepare a reaction.


Click here to download the pdf version of the letter.

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