Illustration for EconPol Opinion 12

Digitalisation should be promoted, not taxed

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A 3 percent tax on digital turnover, recently proposed by the European Commission, will stifle digitization in Europe and will only encourage other countries to take countervailing measures, says EconPol expert Clemens Fuest.

The Commission justifies the new tax with the observation that companies like Apple or Google sell their goods and services in Europe but pay almost no profit taxes here. This overlooks that current international tax agreements do not stipulate that companies pay profit taxes in the countries where they sell their goods. Profits should be taxed where these goods are developed and produced. In the case of the global internet giants, this is the US. Whether or not the US exercises its right to tax these profits is not a concern for the EU.

Countries where the goods are sold do collect value added tax. Europe could of course try to change international tax rules. But that would mean it loses the right to tax the profits of its exporters - their profits would be taxed in China or the US.

Instead of introducing new digital taxes Europe should promote digitalisation and focus on creating a European internal market for the digital economy.