Google, Amazon and Facebook are to pay more taxes, as the parties have promised in the coalition agreement – but Finance Minister Olaf Scholz hesitates.
September 14, 2018, 10:46 pmEnterpreted on September 14, 2018, 10:46 pmTIME No. 38/2018
Digital companies make big profits, but pay little tax.
© Stefan Jaitner / dpa
All questions at a glance:
1. Why is a digital tax being considered?
Because digital companies usually pay hardly any taxes so far. Corporations like Google, Amazon or Facebook basically do not need buildings or machines or employees in Germany to provide the country with their services. Thus, the German state has no access to these companies, because according to the current tax system, profits are taxed where they arise. Thus, as Johannes Becker formulated, Director of the Institute of Public Finance at the University of Münster, "a fiscal demon emerged: omnipresent, highly profitable, but unfeasible for tax purposes".
According to estimates by the EU Commission, the average tax burden of traditional business enterprises in Europe is effectively 23.2 percent, compared with only 9.5 percent for digital companies. The Commission has therefore proposed that digital companies should, as a transitional measure, pay a special tax of 3% of turnover. It would be due, for example, if social media companies or search engines sell user data for advertising purposes. It would be raised by the states in which the users are based, for example by Germany, when it comes to German data. In the long term, according to the Commission, a "significant digital presence" in a member state should be treated in the same way as a physical establishment – with the argument that the users' data is also used to create value, for example by making Google possible to use a search algorithm to improve.
2. Why is Olaf Scholz against it?
Scholz is not fundamentally against the taxation of digital companies. A position paper drafted by its ministry's governing body states that these should make a "fair contribution to the financing of public goods". However, a "use taxation", as planned by the Commission, was "not effective". The reason for the restraint: as an export nation, Germany benefits from the current principle that profits are taxed where they arise. If a Mercedes in Sindelfingen screwed together and sold in China, Daimler must tax the corresponding profit in Germany. Concern in the ministry: If the taxation of digital companies was changed over to the users, this could be used to act more strongly on this principle to the detriment of Germany in other economic sectors. For example, the Chinese government might come up with the idea of taxing a Mercedes imported from Germany in China, because it is only the massive use of the vehicle by Chinese customers that enables Daimler to identify and correct malfunctions. In the end, German tax money could flow abroad. As a result, the German state may have less revenue instead of more revenue.
This article is from TIME no. 38/2018. Here you can read the entire issue.
Scholz shares the skepticism of his officials, but he must also take into account his political allies. In the SPD, but also in countries like France, an open criticism of the Commission's model will be seen as a collapse of the Internet companies. That's why the minister plays for time. At the European Finance Ministers meeting, it was agreed that a compromise proposal would be drafted by the end of the year.
3. So has Scholz fallen over?
It depends. The coalition agreement between the SPD and the Union states that the German government supports "fair taxation for large corporations such as Google, Apple, Facebook and Amazon". In an interview, Scholz had said that it was "more than fair and reasonable" for the EU to think about how the "profits of these companies" could be taxed. That would speak for the Umfallerthese. However, Scholz has never said that he supports the variant of digital tax developed by the Commission. In fact, Germany has been reading the topic for some time. Although Scholz's predecessor, Wolfgang Schäuble, initiated the debate on increasing the taxation of digital giants a year ago in a joint letter with his counterparts from Spain, Italy and France, he also warned against any potential loss of revenue.
4. How can the problem be solved?
The Ministry of Finance is examining various models. One starting point is the tax reform of Donald Trump. She introduces a tax
globally intangible low-taxed income
one, ie global, low taxed, intangible income. This gives Washington access to revenue from foreign branches of American companies. So corporations can be asked to pay, who have relocated business in tax havens. If the industrialized nations introduce something similar, this could lead to a global minimum tax for the digital companies. How the tax revenue would be distributed is another question. Because the tech companies are based mainly in the US, the tax would be mainly incurred there. So Google and Facebook would finance the American and not the German infrastructure – just as VW finances the German, not the American infrastructure.