EU tax moves positive step to more just world
As the recent scandal over Facebook and the company Cambridge Analytica has shown, many companies operating in the new “digital economy” are, essentially, extractive industries. They mine and sell data on an immense scale. The ephemeral nature of this digital activity makes it hard to pin down where activity is actually taking place and where “value” is being created.
In reality of course, the global tax system has been failing to adequately align taxation with economic activities and value creation in a meaningful way for a long time. In highly integrated businesses, it is simply not possible to clearly identify what creates value . However, patents, royalties and other intangible assets are regularly presented by multinational companies as value creators and this has led to opportunities for some smaller European countries like Ireland, through a “competitive” tax offering, to secure the presence of many global tech companies who make their money elsewhere but declare their profits in Ireland.
The European Commission’s proposals to introduce a digital services tax aims to address the tax challenges of the digital economy as part of a wider process of tax reform within the European Union.
We agree that a digital services tax on the provision of certain digital services is an encouraging interim measure, but the reality is that the entire system is no longer fit for purpose and needs fundamental reform.
It is increasingly clear that digitalisation has exacerbated the unsuitability of current international tax rules. And indeed the European Commission has also outlined more significant proposals for the longer term, to change the ways in which companies are viewed to have a “digital presence” in a country (based on numbers of users etc), and therefore the way in which they are taxed.