May 06, 2019

AmCham Speaks Out: Digital Tax May Backfire

AmCham, in partnership with the Danish Chamber of Commerce, published an op-ed on digital taxation in Børsen as a response to the Tax Minister’s op-ed (Jyllands-Posten) on May 1, 2019.

By Jacob Ravn, Chief Tax Officer, Danish Chamber of Commerce and Stephen Brugger, Executive Director, AmCham Denmark

The EU has put the digital tax debate on hold while waiting for an OECD solution. Unfortunately, it has not halted the debate in regards to an EU tax or a national tax. Most recently, Tax Minister Karsten Lauritzen urged the tech giants to be more social-minded and pay taxes in the host country where their value is generated.  The Minister also points to a solution where companies are taxed in either the EU or in Denmark.

Anything but a global tax solution would be unwise seen from either side of the Atlantic. Otherwise the only outcome would be the short-sighted political gains of being able to propose funding of welfare services that are not financed by voters or local businesses. Although Danes and Europeans alike may envy the success of the tech giants, the European digital tax proposal is likely to decrease our tax revenue and thus abate our prosperity.

The taxation of cross-border companies are built on widely accepted global principles on where and how to tax an entity. An individual country or the EU cannot single-handedly decide to implement other taxation principles without international retaliations or provisions from the nation states that will be affected.

If Denmark or the EU impose tax on the tech giants, it is likely that actions or lawsuits will be submitted under the auspices of the WTO and that the Americans will impose taxes on Danish and European companies. This could be e.g. French car manufacturers or Danish pharmaceutical companies.

Proponents of a digital tax needs to remain calm and patient. As a best-case-scenario, a digital tax may bring Denmark an additional revenue of DKK 500 mio. In comparison, Novo Nordisk paid DKK 7.7 bn. in corporate tax – a large amount of which is generated from U.S. pharmaceutical sales. Are we truly willing to squander this?