Double Down on Digital Tax - Main contents

European Parliament will discuss a more ambitious digital service tax, through a higher rate of 5% and a broader scope, including a tech-giant like Amazon

“The digital service tax is right to address the glaring distortion of an unlevel playing field and to address the growing inequality between workers and small enterprises on the one hand and large multinationals on the other hand. That the measure is temporary should not stop Europe to tackle the distortions and inequalities head on. Efficient and fair is to raise the rate from 3% to 5% and to broaden the scope to include tech-giants like Amazon and Netflix”, says MEP Paul Tang, who has drafted the Parliament report on the Digital Service Tax (DST).

The draft report proposes to raise the rate of DST from 3% to 5% on digital revenue of the largest multinationals. Taking into account the high profit margins large tech firms that Google and Facebook tend to make. And to reflect an implied tax of profits of 20%, equivalent to the 20.9% average corporate tax rate paid by traditional firms. In addition, the scope of the tax is broadened to include revenue from the supply of digital content and to include e-commerce platforms. Proposing also to tax companies like Amazon and Netflix.

“Excluding Amazon and Netflix from the scope of the DST is unnecessary. Indeed, Amazon is hardly paying taxes in Europe while it is at the same time the highest valued company in the world. We run the risk of creating distortions and loopholes by excluding this major part of the digital economy.”

By raising the rate and extending the scope, the DST is expected to raise over 10 billion euro in tax revenue. Double the estimate given by the Commission for its proposal. For example Amazon alone, would have to contribute more than one billion euro of Digital Service Tax on its revenue in EU Member States. A company like Netflix is expected to pay 125 million euro DST on its EU revenue.

(See table 1 for the bottom-up estimates of the DST of some of the major digital companies)

‘A significant Digital Service Tax as a short term measure is the way to convince sceptics on the need to reform the corporate taxation in Europe. These billions of tax revenues can be used for the public good. And it’s a reset of the unlevel playing field that currently exists between the digital multinationals and their local brick and mortar competitors.‘