An EU Digital Tax Places an Unnecessary Additional Burden on Firms and Cannot Be in the Interest of Germany

At a recent meeting, the finance ministers of the European Union agreed on the introduction of a so-called digital tax for Europe at the beginning of 2019, which is in line with the ideas brought forward by the EU Commission. More specifically, they agreed on a digital services tax of three per cent on gross revenue generated from the provision of certain digital services within the EU. The tax is directed at digital companies located in non-EU countries and in EU Member States generating total revenue of over 750 million euros, 50 million of which are made in Europe. Professor Christoph Spengel, research associate at the Centre for European Economic Research (ZEW), Mannheim, and Chair of Business Administration and Taxation II at the University of Mannheim, comments on this matter.

“The idea behind implementing a digital tax at the European level is based on the assumption that digital companies pay less tax than traditional businesses. This is, however, simply not true. There are a number of reasons why a special tax is not appropriate here.

The basis for taxation is and has always been company profit, regardless of whether the company in question is a digital enterprise or not. Moreover, it is downright impossible to make a clear-cut distinction between digital and traditional, or non-digital companies. In fact, in the future a number of sectors such as the automotive industry – if you think of self-driving cars for instance – as well as the pharmaceutical and chemical industries are set to become increasingly digitalised, which will make separating the digital from the non-digital even more difficult and lead to massive distortion effects.

Finally, a tax on revenue in the form of a digital tax will lead to severe cases of double taxation, since profits will still be subject to full taxation. All things considered, a digital tax would be an unnecessary additional burden on firms. Placing an additional burden on future technologies, which are associated with the creation of highly qualified jobs, cannot be in the interest of Europe and, even less so, of Germany.”

For further information please contact:

Prof. Dr. Christoph Spengel, Phone +49 (0)621/181-1704, E-mail christoph.spengel@zew.de