Sunday

19th Jan 2020

Opinion

Nordic states urge U-turn on EU digital tax plans

  • In March 2018 the EU Commission made two proposals for directives introducing special tax rules for the digital economy. (Photo: Rami Al-zayat)

Digitalisation has led to discussions in the EU and on a global level on how the existing tax rules work in relation to new business models.

For us, it is important to ensure that everyone pays their taxes, digital companies as well as all others.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 30-day free trial.

... or join as a group

  • The EU directives would shift taxing rights to the country of the consumer. (Photo: George Hodan)

The Nordic countries are generally at the forefront of the global fight against tax avoidance, and have actively participated in the work done within the EU and in the OECD to combat base erosion and profit shifting (BEPS). And we remain ready to do more on this issue.

We note that the recent US tax reform with its Global Intangible Low Tax Income (GILTI) provision should precisely address issues of tax avoidance by US digital companies, by ensuring a minimum taxation of 13 percent on profits from foreign sales, which previously could often go untaxed for a long time.

This is an important contribution to securing a level playing field between US and European companies.

Taxing the digital economy

In March 2018 the European Commission made two proposals for directives introducing special tax rules for the digital economy.

We welcome and support the active EU engagement in the discussion on counteracting base erosion and profit shifting in light of digitalisation, but note that the two proposals are mainly about changing the current rules for allocating taxable income between countries, for the digital economy, rather than fighting tax avoidance.

The proposals partly shift taxing rights to the country of the consumer or the digital user, based on the premise that these contribute to value creation in the digital economy.

This deviates from internationally established principles.

Traditionally, exporting firms do not pay taxes in their export destination simply because they have consumers there.

The proposal for a digital services tax means that basically all value creation is deemed to take place at the location of the consumer.

Furthermore, a digital services tax deviates from fundamental principles of income taxation by applying the tax on gross income, i.e. without regard to whether the taxpayer is making a profit or not.

Such substantial changes to the current international principles need to be discussed and agreed internationally.

Complicating international cooperation

If we in the EU unilaterally apply a digital services tax on gross income, including to non-EU firms, the tax will be difficult to enforce and there is a substantial risk that it will complicate international cooperation in the tax area.

Furthermore, it seems unlikely that third countries would quietly accept isolated EU actions in this area without introducing corresponding measures for taxing companies of EU member states.

In the end, we would risk moving to a general destination-based allocation of taxing rights, which is not in the interest of the EU.

We believe there are no reasons to deviate from internationally established principles regarding the allocation of taxing rights for the digital economy.

The digital economy as well as the traditional economy should be taxed where value is created.

Therefore, there should be a thorough analysis whether and to what extent, users in some specific digital business models contribute by creating value for the business and whether this should be somehow reflected in taxation.

This analysis needs to reach a certain international consensus to be effective, and so a substantial part of it must again be done in the OECD.

The Nordic countries will continue to participate actively and constructively in such work, and we would support an acceleration of the OECD discussions on this topic, so that we can find a consensus-based solution rapidly.

Favourable climate for business

In these discussions, we must also keep in mind the crucial part innovation and research and development play in creating value for businesses and growth and welfare in general.

A system based on where the users are located must not reduce the incentives for states to provide a favourable climate for business.

Digitalisation is changing the world swiftly and in the future it is bound to affect also the businesses we now see as traditional ones.

Our aim is to guarantee that all businesses - new and old, more or less digital, national and international - are taxed in a similar efficient and fair matter, based on where value is created, so that the Nordic countries and the rest of the EU remain competitive in an increasingly interconnected and digital word.

The OECD BEPS project has in the recent years delivered significant results in the fight against tax avoidance, showing that global cooperation on tax matters is not only desirable, but also possible.

Crucial BEPS initiatives are now being implemented in both EU and the US helping to counter tax avoidance by for instance the digital giants.

We are convinced that global cooperation needs to be given a real chance to succeed also when it comes to digital taxation.

Magdalena Andersson is Sweden's finance minister, Kristian Jensen is minister for finance in Denmark and Petteri Orpo is FInland's minister of finance.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

EU leaders set for 'stormy debate' on digital tax at summit

A proposal by the European Commission will be discussed on Thursday night at the EU summit, with member states divided over the principle of taxing tech companies - amidst ongoing concerns of a trade war with the US.

The great EU corporate tax lie

Attempts by the European Commission to 'sell' the new Common Consolidated Corporate Tax Base as a measure against tax avoidance are disingenuous at best, say three MEPs from smaller member states.

News in Brief

  1. 'No objection in principle' on Huawei cooperation, EU says
  2. French aircraft carrier goes to Middle East amid tensions
  3. EU suggests temporary ban on facial recognition
  4. EU industry cries foul on Chinese restrictions
  5. 'Devil in detail', EU warns on US-China trade deal
  6. Trump threatened EU-tariffs over Iran, Germany confirms
  7. EU trade commissioner warns UK of 'brinkmanship'
  8. Germany strikes coal phase-out deal

Column

Why nations are egomaniacs

A nation, Reinhold Niebuhr wrote, is not capable of altruism. Even less so, if such a group has formed on the basis of strong emotions and casts itself as the "saviour of the nation".

Maltese murder - the next rule-of-law crisis in EU?

While Poland's government is escalating its rule of law crisis by introducing even more drastic measures against the country's judges, another problem is looming over the EU's commitment to upholding the rule of law: Malta.

Stakeholders' Highlights

  1. Nordic Council of Ministers40 years of experience have proven its point: Sustainable financing actually works
  2. Nordic Council of MinistersNordic and Baltic ministers paving the way for 5G in the region
  3. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms
  4. Nordic Council of MinistersNordic Climate Action Weeks in December
  5. UNESDAUNESDA welcomes Nicholas Hodac as new Director General
  6. Nordic Council of MinistersBrussels welcomes Nordic culture

Stakeholders' Highlights

  1. UNESDAUNESDA appoints Nicholas Hodac as Director General
  2. UNESDASoft drinks industry co-signs Circular Plastics Alliance Declaration
  3. FEANIEngineers Europe Advisory Group: Building the engineers of the future
  4. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  5. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  6. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues

Join EUobserver

Support quality EU news

Join us