By Erik Sass
“In Spain we have a saying that something is ‘riskier than a monkey with a machine gun,’” Juan Fina, president of La Unión de Contribuyentes (Spanish Taxpayers’ Union) told the audience at the European Resource Bank’s meeting in Chisinau, Moldova, on March 29, 2019. That’s the level of danger Spanish politicians are flirting with in their pursuit of a national digital services tax, according to Fina, and they’re not the only ones: in fact the whole EU may still have to confront the well-armed primate, if EU politicians and technocrats have their way.
Indeed the example of Spain and several other European countries considering national DSTs shows that in Europe as elsewhere bad ideas never really go away, but linger, waiting for someone with opposable thumbs to pick them up again.
The European Commission proposed the original EU-wide DST in March 2018 with the intention of simultaneously squeezing revenues out of (mostly American) tech giants and limiting their influence on EU economies, on the pretext that existing tax codes are no longer adequate for an era when products and services are often sold across borders, thanks to digital intermediaries like Google, Facebook and Netflix.
Under this ill-starred proposal, profits would have been “registered and taxed where businesses have significant interaction with users through digital channels,” the EC explained, meaning companies based in the U.S. would not only pay taxes there but in the European countries where they serve consumers as well – even if they don’t have a physical presence there. The proposal was justified on the general principle that taxes ought to be levied where value is created, and that in the case of digital companies the value is created in Europe, where consumers for example volunteer their personal data, view targeted digital ads, and engage in e-commerce.
Opponents of the DST cited a number of counterarguments, not least of which was that the creation of value in digital services takes place where they are originally invented, not where they are consumed. In that vein Fina’s fellow panelist, Swedish entrepreneur Anders Ydstedt, eviscerated the EC’s reasoning with one straightforward example: would the French government agree that the value of a bottle of wine is actually created when it is opened and drunk – calling for an additional tax on wine sales that would inevitably raise the price for consumers, hurting wine sales – or does it actually occur when French vintners grow grapes, ferment their juice, and bottle the product?
Fortunately the EU dodged a furry, mischievous bullet when several member states, including Sweden and Ireland, used their veto power to block the DST. But that isn’t stopping countries like Spain from pressing ahead with their own DST plans, which may well pass, depending on the composition of the next Spanish government after elections due on April 28.
That could end up having serious ramifications for Spain if they go forward, Fina warned. For one thing, “this tax would really kill our startups,” which would become collateral damage in the war against the tech giants, as well as “complicate things for the average consumer, [making] products and services more expensive to all.” Even more dangerous, Fina pointed out, the tax is effectively a tariff “tailor-made” to target a handful of foreign companies thanks to its specific criteria for revenues and business models: “The only thing that needs to be written into Spanish law [to make it even more specific] would be the names of Google, Apple, Netflix.” As such, the DST tariff would set the stage for trade retaliation by the United States, Fina predicted, drawing comparisons to Cervantes’ classic: “We think it is completely crazy for Spain to go alone in a trade war with the United States… Also it is completely unfair and more damaging for us than the American companies.”
While Spain arms marmosets and hopes for the best, Ydstedt warned that Europe could well face double jeopardy on the DST as well. Having been stymied by unilateral vetoes, in classic statist fashion DST supporters led by France are lobbying to replace consensus decision making with “qualified majority voting” on matters of taxation, meaning naysayers like Sweden and Ireland can be overruled to pass the DST anyway. Here Ydstedt urged his audience: “Qualified majority voting is the dangerous thing that we have to look at and stop.”
In fact the EU’s own integrity and cohesion are at stake. In addition to raising consumer prices, stifling startups, and starting a trade war with the U.S., further aggrandizement of the EC’s power risks alienating member states at a time when centrifugal forces already threaten to tear the EU apart. But those monkeys just look so darn cute.