Digital companies are not paying their fair share of taxes, the European mantra goes. The European Commissioner responsible for taxation, Pierre Moscovici, recently stated that “digitalised business models are subject to an effective tax rate of only 9% … Less than half compared to traditional business models.” Moscovici will, for this reason, on 21 March present new tax proposals aimed at companies’ “digital activities” (whatever that means).
The inconvenient truth is, however, that digital companies pay a higher effective corporate tax rate than traditional companies. Digital companies’ real effective corporate tax rates are many times higher than the Commission’s estimated 9%. Digital companies pay, on average, between 26.8% to 29.4%, according to a new study from the think tank ECIPE (see figure below).
The author of the Commission’s own research, Professor Christoph Spengel, also criticises Moscovici’s assertion; “It is not correct to state that the digital sector is undertaxed.” Other studies have previously come to a similar conclusion.
Yet, the European Commissioner seems dead set on imposing a new tax regime targeting (mostly foreign) digital companies. By doing so, the Commission also ignores its own expert group on taxation of the digital economy which concluded that “there should not be a special tax regime for digital companies.”