Digital tax in Bavaria
In the middle of the Germany and Europe-wide discussion about the digital tax, Bavaria has pushed ahead. Put simply, a passage from the Income Tax Act is interpreted in such a way that companies like Google leave algorithms to their customers. Accordingly, 15% withholding tax would be due – as if a foreign artist were performing in Germany. At the same time, however, Bavaria is also calling for a nationwide clarification of the legal situation, because it is also clear that this approach is not a practicable permanent solution.
However: Strictly speaking, provided know-how would have to be made available in such a way that customers can subsequently use it independently. Whether this is the case with Google can at least be seriously doubted. It is certain that in Bavaria the affected cases will be “kept open” until there is a nationwide uniform procedure.
The main problem, however, is that this tax would not necessarily hit Google, Facebook and Co, but the small and medium-sized enterprises that use offers from providers such as Google and Amazon. This not only caused panic among the companies concerned, but angered all those who now have the impression that local small and medium-sized enterprises are being held responsible for ensuring that digital corporations do not pay taxes.
Why a uniform national legal concept is important
The amount of taxes can vary from region to region. However, if Germany does not succeed in finding a unified position on the digital tax, that would be fatal. The high burden that was being considered in Bavaria would be a massive distortion of competition for the companies based there.
In addition, tax loopholes must always be closed on a global level as far as possible. Finding a Europe-wide uniform solution will be difficult for the time being due to the principle of unanimity on this question – and Ireland’s special position. At least within Germany, however, there should be legal clarity. Entrepreneurs need them, and it is also not a good look to present regional micro-solutions for the country’s political image.
Economic and fiscal analysis of the digital tax
If we summarize all aspects of digital tax, it can be said that the basic idea that tax loopholes should be closed is, of course, positive. At the same time, however, tax avoidance tactics must not be used as an excuse to introduce a new tax that completely reverses an established system. The system of taxing income from services sold at the company’s headquarters, i.e. where the services were created, is a basis of tax policy. A change in the direction of taxation of income from goods and services sold where they are consumed is economically nonsensical for any export-oriented country.
International corporations need international rules
It is therefore important to find alternatives. Tax loopholes must be closed, but this requires the cooperation of those states that created these options in the first place. At the same time, it must be kept in mind that the entire tax system cannot be changed – possibly to the detriment of other, export-oriented industries.
In addition, regional approaches are no solution. On the contrary, it would be particularly important for global corporations to find answers that are as global as possible. Such an answer would be a uniform line across the EU; it would be even better if other states were also brought on board.
Since legal certainty is an important pillar of any functioning economy, a viable, clear solution must be developed quickly. This must be such that domestic small and medium-sized enterprises do not experience any disadvantages. The entire national and European economic situation must always be taken into account.
view in the future
In the medium and long term, the discussion reveals two things in particular:
- A Europe-wide tax system would help to close loopholes – at least within the EU.
- Germany and the entire EU must finally try to create globally relevant technology companies in the digital sector themselves . For this, many factors have to come together, as will be explained in the next paragraph.
Alternatives to the digital tax
In the long term, the entire basic approach to the way of thinking that is now emerging must change. Away from the thought that someone has created something, sells it in Germany and now we have to try to tax him here, towards considerations of how it can succeed in establishing companies from Germany in such a way that they are internationally successful in digital markets.
Creating the conditions for this is a big task. It starts with an appropriate level of education and extends through specialized study programs to the promotion of start-ups and the attractiveness of the location for venture capitalists. A lively environment in which rapid, global growth is made possible is the basis for creating global digital companies.
Of course, they should also pay taxes, regardless of where they come from and where they export to. It is important that the discussion about the digital tax does not become a diversionary maneuver in order to cover up the fact that there is still no global player á la Amazon, Google, Facebook and Co. from Germany .
Conclusion
Close tax loopholes: yes, please! Preferably also for all other companies, not just for digital corporations. It is at least as important – and, above all, completely independent – that Europe becomes an ideal location for digital companies in the future so that technologies can be created and sold locally and the corresponding tax payments then flow.
Regional solutions are just as pointless as threatening additional payments for small and medium-sized companies, which could be dragged into the dilemma with practically no involvement. From a business perspective, it would be important to find holistic solutions at EU level instead of creating uncertainty with regional cross-sections.