The European Commission's proposal for the short-term taxation of the gross income of certain digital activities unsurprisingly received a frosty welcome in Washington, at a conference hosted by the American Enterprise Institute on Thursday 19 April (see EUROPE 11986, 11983).
The most virulent criticism came from Professor Itai Grinberg of the Georgetown Law Centre, who believes the US tax reform would resolve the main problems of the under-taxation of the Internet giants. “The rhetoric from Moscovici may contain elements of proofs of the past, but is clearly demonstrably false regarding the present”, he said, adding that the Commission had misinterpreted the German academic study which stated that digital businesses were subject to an effective taxation rate that is half that of so-called traditional companies.
“We need to deal in facts and truths”, he stressed.
On behalf of PricewaterhouseCoopers, William Morris said that the study highlighted the incentives the EU granted to certain types of activities, on the basis of “hypothetical” figures. “It is not the average effective tax rate” of Internet businesses, according to Morris. “When the Commission uses this study in support of that argument in favour of a specific web giants tax, it doesn't quite stand up”, he said.
The Commission's proposal is the “biggest current push towards destination-based tax”, Grinberg said. He added that applied to the economy as a whole, rather than just the digital economy, it would leave Europe in a worse position than currently, as its economy is quite export-heavy. He said that this also means that if a product or service is developed in Denmark, the country would derive no value from it, if the tax is based on the place where the consumers are located.
“I fear we are rushing towards a solution and I don't think that's what we should be doing”, Morris said. He voiced concerns that an interim solution would remove the existing pressure to find a long-term structural solution.
“We should not be discussing the digital sector companies, but how digital is transforming the economy”, he said.
“Not rushing it should not be a synonym for doing nothing”, said Quest, Director General at the Commission on taxation matters.
Commissioner Moscovici, who was present at the event before these contributions, reiterated his commitment to a long-term solution. However, he added that if the Commission had not taken action in the short term with its tax on digital activities, the member states would have done so unilaterally with a random range of taxes, that would have caused fragmentation on the single market. (Original version in French by Élodie Lamer)