With the gathering of world leaders, journalists, and CEOs kicking off in Davos, Switzerland, this week, this year’s theme of “Globalization 4.0” seems particularly relevant as the world contemplates the rise of tech and its impact on the globe.
Never shy to miss an opportunity for a little self-promotion, the European Commission’s internal think tank released a report at the opening of the conference reflecting on that theme, stating Europe has “become the standard-bearer for global cooperation, multilateralism and democracy.” But European treatment of American tech companies that are leading the charge on globalizing consumer practices demonstrates a commitment to anything but.
The report says the EU is “driving human-centric technologies and digital rights,” claiming it is “holding global tech firms to account, whether on privacy and taxation or competition and disinformation.” The report does not mention that despite years of attempting to erect new revenue regimens that would increase taxes on American tech companies, member states have been unable to reach consensus and move forward with a new approach.
In fact, at the G-20 meeting of finance ministers this summer in Argentina, European officials were unsuccessful in pressuring American leadership in accepting their revenue gambit, and ultimately many member states began to pursue separate proposals that could potentially leave American tech companies liable to new, complex tax systems in different European countries.
Spain this week has become the latest country to announce a new “digital services” tax, which could potentially make every search in a platform a taxable event. This comes on the heels of an announcement from Austria that explicitly singles out American tech companies as the targets for a new tax. Austrian Chancellor Sebastian Kurz didn’t mince words in his announcement: “The aim is clear — to tax companies that generate huge profits online, but pay hardly any tax on them, such as Facebook of Amazon.”
Despite this bombast, the EU has failed repeatedly to show such claims are true. After all, American tech companies are responsible for all the same liabilities other corporations doing business in the EU face. Moreover, changes in the U.S. international tax regime have bolstered guardrails against what the EU calls “stateless income.”
Further, a study produced last year from the European Centre for International Political Economy showed that EU members have collected corporate tax revenues at a rate far higher than the growth of their economies — a full 40 percentage point difference since 1995. Corporate tax revenues as a share of the economy stayed constant, and actually were one-tenth of a percentage point higher in 2006 than in 1995, belying the argument from European officials that the need for new taxes is precipitated by an increase in tax avoidance.
Many proposals, the EU included, would not tax corporate tech net profits but instead levy new charges on a company’s gross income, meaning the company would be responsible for a tax even if it is operating in the red. But the nature of the digital landscape is one that changes quickly and requires massive investment to promote innovation. As such, these companies plow much of their profits back into their companies to feed that evolution. In fact, Amazon doesn’t even turn a profit outside the United States.
European countries should be wary of capricious tax plans that discourage this kind of dynamism, particularly as extra scrutiny is being devoted to how some of these companies evolve to combat modern threats. These companies have created opportunity across the world for greater connections in conversation and commerce, and have provided jobs and digital infrastructure that is a net good for every country in which they operate.
“Globalization 4.0” is catchy, but truly embracing the challenges of a globalized world requires the EU to abandon short-sighted tax grabs in favor of policies that promote dynamic economic ecosystems. In the end, it doesn’t matter what the theme for Davos is if the leaders in attendance eschew public policy that would provide the foundation for progress worldwide.
Mattie Duppler (@MDuppler) is a contributor to the Washington Examiner’s Beltway Confidential blog. She is the senior fellow for fiscal policy at the National Taxpayers Union. She’s also president of Forward Strategies, a strategic consulting firm.
