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Digital tax
The COVID-19 pandemic has had a strong impact both on Poland’s budget and the budgets of other EU countries. The introduction of many tighter regulations and restrictions on movement, as well as the closing of shopping centres for several weeks has significantly limited stationary sales opportunities.
As a consequence, companies have begun developing their activities on the Internet. This has benefited the technological giants that have noticed a substantial increase in their revenue due to increased sales of online advertising and streaming services.
How have individual countries responded to this situation? How has the global pandemic affected the work related to the introduction of a digital tax at European Union level? Has a common position been adopted in this regard? In the opinion of Angel Gurría, Secretary-General of the OECD, we need to introduce new rules to ensure integrity and equality in our tax systems and to align the international tax infrastructure with new and
Will digital tax be introduced in EU countries?
- Digital tax in Poland
- Digital tax in the European Union
- Status of local implementation in the European Union
Digital tax in Poland
Originally, digital tax was supposed to come into force in Poland from 1 January 2020, but the government ultimately decided to put legislative work on hold until a common position could be worked out by the OECD and the European Union. According to the original plan, an international solution was to have been agreed by the end of 2020, but COVID-19 thwarted these plans. Finally, it was recently agreed that the resolution would have to wait until mid-2021.
According to a report dated December 2018, prepared by the Foundation operating at the Union of Entrepreneurs and Employers, the Warsaw Enterprise Institute, it was estimated that the introduction of a tax on digital services would bring in a budget estimated amount of PLN 370 million to PLN 470 million a year.
The aforementioned estimates are a strong argument in favour of introducing a digital tax in Poland as quickly as possible. Due to the lack of an international agreement, Poland has decided to impose an additional levy on its own. Therefore, in the so-called Anti-Crisis Shield 3.0, the legislator introduced an audiovisual charge, being the equivalent of 1.5% of the revenue earned from fees for granting access to the publicly available on-demand audiovisual media services, by amending the Cinematography Act (Journal of Laws of 2019, item 2199 and of 2020, item 568). According to the amendment, the said charge is to be transferred to the Polish Film Institute.
The regulatory impact assessment shows that the Polish Film Institute would receive approx. PLN 15 million in audiovisual fees in 2020 and PLN 20 million in the following years. As can be seen, the estimated amounts are much lower than those presented in the 2018 report by the Warsaw Enterprise Institute, however, audiovisual fees only apply to entities which provide streaming services. In Poland, the entities that will bear the main burden of the fees are Netflix and IPLA.
As pointed out above, the differences between the expected amounts are mainly due to the range of entities that will be subject to the envisaged legal regulations. If the planned digital tax is introduced, it will apply to the entities that provide digital intermediary services and targeted advertising services. For this reason, the group of companies that may potentially be taxed with digital tax will include companies such as Google, Facebook, Amazon and Apple.
Digital tax in the European Union
According to an analysis carried out by OECD[1], the proceeds from digital tax could amount to USD 50 to 80 billion worldwide. Taking into account the foreign earned income tax applicable in the USA, that amount would increase to USD 100 billion.
In this context, in connection with the ongoing work on the comprehensive regulation of digital tax issues, 137 countries worldwide have decided to negotiate consistent rules of taxation for international technology corporations. However, the desire to work out a common position has not stopped some EU countries from introducing local legal regulations that are akin to a digital tax.
As of October 2020, Slovenia, Latvia and Poland have expressed interest in introducing such a tax, whereas Austria, France, Hungary, Italy, Spain and Great Britain have already implemented it in their legal systems. The countries that have officially published their proposals for the adoption of a digital tax include Belgium, the Czech Republic and Slovakia.
Unlike in Poland, the locally introduced regulations in EU countries are mainly targeted at entities that provide advertising services and enable their users to contact, interact with or publish content that is available electronically to other users. The mechanism for calculating tax for the aforementioned entities assumes the use of the following formula:
tax rate (%) × revenue generated by a given entity worldwide × territorial ratio (%) = digital tax
In the context of the above formula, it should be emphasised that a digital tax applies if at least one of the users of a digital interface is located in a given country. A user is considered to be in a given country, when he or she accesses a digital interface from a terminal (such as, for example, a laptop, tablet or mobile phone) located in that country.
Due to the broad scope of the above-mentioned formula, the anticipated budget receipts are much higher than in the case of the Polish audiovisual charge. Potentially any entity whose total revenue from digital services exceeds EUR 750 million in a given year and which provides advertising services or digital intermediation services via a telephone application or website may be subject to a digital tax ranging from 3% to 7.5%.
Status of local implementation in the European Union
Source: Opracowanie własne na podstawie Digital taxation State of play and way forward
Due to pressure from the USA, some countries have decided to suspend the regulations they introduced or to amend them significantly, e.g.: a 3% digital tax in France has been suspended until the end of December 2020, a 7.5% digital tax rate in Hungary has been reduced to 0% until 31 December 2022, and a 3% digital tax in Spain will not come into force before January 2021.
Despite the fact that locally introduced digital taxes are temporary, in the context of the above regulations it can be seen that implementing effective and global solutions may be very difficult in practice.
The aforementioned status shows the tendency among EU countries to look for additional sources of revenue. Therefore, it seems that the drop in budget receipts due to the pandemic has only accelerated the inevitable introduction of a digital tax.
Effects for the retail industry
Due to the nature of the digital tax - as it currently stands - it applies only to entities that generate high revenues from advertising activities and thanks to providing their users with the possibility of contacting, interacting or publishing electronically available content. In the context of the above-described changes, entities from the retail industry involved in the production and distribution of various types of products should not be subject to digital tax in the situation of transferring their activity to the Internet. Nevertheless, a large-scale digital tax may contribute to an increase in the costs of services provided, which in turn may affect the value of existing agreements with technology giants. Entities that make extensive use of the services of these giants may potentially bear the final economic burden of the digital tax introduced.
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