One year ago, on March 28, 2018, the European Commission presented proposals for two directives to tackle the issue of taxing the digital giants.
The first focused on the idea of a significant digital presence, and the second one on a 3% interim tax calculated on the revenue generated by large digital service providers.
One year later, the expectation for states to collaborate on the adoption of those directives has slowly evaporated. Nevertheless, some national initiatives recently overtook the EU, with France and Italy, for example, working on a 3% Digital Service Tax (DST), while the UK has announced a similar 2% tax.
The real targets
The clear benefit of these moves is ending the deadlock. The tax is due to the jurisdiction where the users accessed a digital interface with a device.
However, this approach has some drawbacks. Thanks to their sheer size, the digital giants are not really affected by an increase in their costs, so it is quite easy for them to pass on the impact of the tax to the clients purchasing their services. As a result, a tax aimed at the digital giants may miss its real target.
It could also be said that this new tax is limited in its economic impact because it focuses not on profit calculated abroad but only on revenue generated locally. If the taxing sovereign state was formerly a kind of economic shareholder, receiving its share of the profits through corporate tax, the DST has turned it into a mere licensor.
Therefore, other proposals may be worth looking at. The Organisation for Economic Co-operation and Development continues to work on a more global solution and announced the next steps in its process in January 2018.
Another approach could be to acknowledge that a new industrial revolution is upon us: the data revolution. The raw material that made possible the first industrial revolution were subject to taxes, so might these be taken as an example? Should data be considered as liable for sui generis taxation?
Who owns data?
Just as the mining industry pays taxes on the volume of extracted raw material, the quantity of data an interface collects could generate the payment of a tax. Another option is that the taxable event could be generated by the storage of data, whether in house or outsourced.
The tax could be applied to any collected or stored data, including the Internet of Things, or limited in scope to personal data using the General Data Protection Regulation’s definition. The tax could be levied on data collectors or on data owners, but this raises the big question of data ownership.
If everyone agrees that personal data deserves protection, the question of whether personal data should be declared beyond commercial interests has no clear answer. Could privacy be for sale? How do we define personal data ownership? Could a company that has legally collected private data be seen as owning it, when an individual has the right to ask for their deletion? Can non-personal data that does not benefit from deletion be owned?
The pros and cons mentioned above have to be anticipated, evaluated and balanced from an economic perspective, but also from a social one. When companies are global but taxes rely on jurisdiction, a shift is in progress. When states tax profit while some companies focus on their market share, there is an asymmetry of economic goals. And when welfare system contributions are calculated on worker payslips, while artificial intelligence and robots are expected to disrupt the labour market, the entire social system is at stake.
The mismatches are so numerous that the mechanisms for raising public money need to be properly addressed so that a taxation system of the future can emerge. Why not start by taxing the collection of private data?
Emmanuelle Deglaire is associate professor of law at EDHEC Business School and a specialist in tax matters and business structures.
