Gunnar Hökmark proposes to reject the digital services tax

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The Commission has launched a proposal of a digital services tax. Gunnar Hökmark has proposed to reject the proposal from Commission.

“This proposal on digital taxation demonstrates a completely new logic of taxation. Such a taxation will undermine the tax bases of smaller member states to benefit the bigger, hinder the development of digital start-ups in Europe and intensify the trade conflict between the EU and the US”, says Gunnar Hökmark.

Amendments proposed by Gunnar Hökmark:

  • The correct forum for tax challenges stemming from the digitalization is within the OECD,
  • The tax challenges stemming from the digitalization of the economy is a global issue requiring a global solution,
  • The underlying assumption of “under taxation” of digital companies can be questioned. An impact assessment from Copenhagen Economics (The proposed EU digital services tax: effects on welfare, growth and revenue) notes that a major factor to digital companies lower effective tax rate is individual countries beneficial research and development regimes as well as fundamental difference in business models,
  • EU should focus on creating a more attractive business environment in order to achieve a well-functioning Digital Single Market while waiting for a global solution on taxing the digital economy,
  • This proposal deviates from well-established principles of international taxation;
  • It is unlikely that the OECD would adopt the same permanent establishment definition as the EU;
  • The is a risk that the EU system of a permanent establishment definition will part way from the OECD system and result in different definitions;
  • The EU system of a permanent establishment definition will develop through judgements from the ECJ while the definition applied in the rest of the world will instead develop through international consensus expressed by the OECD;
  • The permanent establishment definition has developed through a dynamic procedure within the OECD. By deviating from this procedure, the complexity would multiply;
  • With the proposed Digital Services Tax, there is a great risk of creating unfair taxation with unforeseeable consequences;
  • This proposal explicitly changes the allocation of tax revenues between countries. The proposals by the Commission constitute a fundamental change to the international corporate tax system;
  • The proposal regarding a Significant Digital Presence would inevitably result in two parallel systems, which would be extremely costly and associated with great uncertainty for the taxpayers;
  • The proposed Digital Services Tax is a tax on turnover instead of on profits. This deviates from fundamental principles of international taxation;
  • It can be questioned whether a jurisdiction has a right to tax income if there is no physical footprint meaning that the infrastructure of the relevant jurisdiction is not utilized;
  • Digital companies tend to invest less in buildings and machinery than regular companies do;