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DST Proposals Get Pushback in Austria, Czech Republic

Posted on Aug. 9, 2019

Associations from Austria and the Czech Republic have criticized the digital services taxes proposed by their governments, warning that the move could be challenged as unconstitutional.

Peter Buchmüller, chair of Austria's Federal Department of Commerce, was quoted in an August 6 release from the Austrian Federal Economic Chamber as saying that while there is a need to adapt tax systems to the digital age, the issue should be addressed globally, not unilaterally.

Buchmüller said the Austrian economy, particularly the retail sector, is in fierce competition with international online retailers. Therefore, he said, the fight against tax avoidance, evasion, and fraud must be pursued at both the global level, especially the OECD level, and within the EU.

Austrian officials expect the proposed 5 percent advertising tax to raise £200 million annually. The tax would apply to the online advertising revenue of large companies that make €750 million in annual global sales if €25 million or more is linked to digital advertising sales in Austria.

Although the OECD has been tasked with finding a consensus-based solution to taxing the digital economy by 2020, several countries have taken the task upon themselves, such as France, which recently implemented a 3 percent DST. That decision led to pushback from the United States, which views the tax as unfairly targeting U.S. companies. The Association of Large French Companies has recommended that the U.S. trade representative postpone a final assessment of the tax until the OECD delivers its conclusions.

The Czech government is seeking public comment on a proposal for a 7 percent digital tax. In a July 4 release, the Ministry of Finance said the tax is expected to bring in CZK 2.1 billion (about $91.4 million) in revenue for 2020. However, the American Chamber of Commerce in the Czech Republic (AmCham) has warned that the tax poses more harm than good to the country’s economy and recommended delaying further action until 2020.

“We expect the practical effect of the tax to be a shift of money from Czech companies which market through the internet to the Czech state. The economic benefit of that flow is likely to be neutral to negative," AmCham wrote in comments submitted August 5. "In addition, we expect the tax to make it more difficult to attract private sector investment into innovative areas such as artificial intelligence. Finally, we expect the reaction to the tax to result in near term retaliatory measures that will cause an overall negative economic impact and cause significant economic harm to a number of the country’s most innovative companies who export to the United States.”

AmCham also said it believes there are grounds on which the DST could be challenged as discriminatory and unconstitutional. It added that there is a possibility the tax could conflict with EU rules and international treaties, which could result in companies challenging the law on the basis of double taxation.

“If the courts decided against the country, the costs of the tax could ultimately be higher than the revenue derived from it. The OECD is close to proposing a multi-lateral solution on digital tax. Based on this analysis, we would recommend postponing government and parliamentary deliberation of this tax until January 2020 to determine whether the OECD will be able to provide a satisfactory global solution, or whether the EU can act in its place,” AmCham wrote.

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