Taxing Titans

VISEGRAD COUNTRIES’ STAND ON TAXING GOOGLE AND FACEBOOK

Visegrad countries are as divided on the question of taxing tech firms as the whole EU. However, the region’s media experts agree on one thing: it will be advertisers who foot the bill. 

On 21 March, the European Commission unveiled a proposal to impose a 3 percent tax on tech giants’ revenues until a common reform of the EU’s corporate tax rules for digital activities is implemented.

The measure seeking to raise more tax from digital multinationals is far from being unexpected. Online firms like Google, Facebook and Amazon have long slipped from Europe’s tax framework that was designed for bricks-and-mortar businesses. Silicon Valley firms set up their EU headquarters in low-tax countries such as Luxemburg and Ireland, paying a much lower tax rate than traditional companies (10.1% vs 23.2%, respectively).

The Commission’s proposal follows up on an initiative launched last year by France, Germany, Spain and Italy that urged the EU to tax tech giants on their turnover, rather than profits. Their idea was backed at an informal gathering of EU finance ministers by six countries. None of the V4 countries that, along with Russia, have the strongest digital markets in Central and Eastern Europe in terms of online advertising spending were among them.

Visegrad Group: Without a common denominator

Tax rules need the unanimous approval of all 28 EU countries before they can become law, but it is questionable whether unanimous support of the digital tax can be reached. Even though most EU countries have signaled their willingness to tax internet firms more, they are divided on how to do it. This is also true for the Visegrad countries. V4 countries’ reaction on the French initiative last September was quite divergent and anticipate their approach towards the Commission’s proposal.

In the Visegrad countries, around 40% of the total ad spending goes to online ads. Local branches of IAB and their equivalents estimate that between 50 and 60 percent of digital ad spending is spent on international platforms, mainly on Google and Facebook, meaning that around 910 million euros flowed to tech giants from V4 countries’ advertisers in 2016.

Source: CANnual Report 2017

Poland, the country where almost half of this amount was generated, supported a lot of points of the French proposal, however, is less enthusiastic about having a Common Consolidated Corporate Tax Base (CCTB and CCCTB) and would prefer to go through the OECD forum. The other country that strongly supports an interim solution is Slovakia. “We will be one of the first countries, along with France, who want to introduce this kind of levy at the national level,” Finance Minister Peter Kažimír said in an interview.

Source: Own calculation based on IAB Europe, IAB Polska, SPIR, MRSZ, IAB Slovakia 

The Hungarian government is keen on taxing digital multinationals but tries to do so on the local level. It extended the much-debated advertising tax to global internet firms and the Hungarian tax authority imposed a fine of 1 billion forint (3.2 million euro) on Google and Facebook after they had failed to pay. (The measure has simply resulted in including the two companies into the list of Hungary’s top tax debtors.) Nevertheless, Hungary does not draws on EU-wide cooperation to find a more efficient solution and rejects any effort to harmonise corporate and other tax rules.

The Czech Republic has been the most skeptical about the French proposal from the very start, arguing that a turnover tax would be technically difficult to implement. “If a new indirect tax on digital services is proposed at EU level we will need to learn how exactly it would work and namely how this new indirect tax will interact with the traditional corporate income tax,” the Ministry of Finance of the Czech Republic stressed.

Who will pay the tax?

An agreement on the digital tax between EU countries seems a long way off, but the question remains how such rule will affect advertisers when it takes effect. According to weCAN’s media experts from the Visegrad countries, chances are that it is the advertising industry that will pay the tax.

“If such legislation passes, I believe that tech corps will pass it over on advertisers. A 3% cost increase will be hardly noticeable for small to medium sized advertisers. It’s the global players that will be affected,” said Richard Szabo, head of research at weCAN’s Slovakian partner agency Branding_CAN.

The Hungarian weCAN expert agrees that the tax may appear in the cost of advertising. “If companies accept and pay the tax, they cannot pass it on to advertisers because taxes cannot be passed on according to the Hungarian law. However, no one will notice if the cost per click grows by 0.2 forint and it adds up over time,” Anita Király, media director of Café Communications pointed out.

According to weCAN’s Polish media partner, the measure may affect other media types as well. “I think that a few percent of cost increase for clients will not result in a decrease of the number of advertisers or budgets allocated in Facebook or Google. Both of them have the highest conversion rates for sales and that is a real value for clients. The extra money needed for taxes will be transferred from less measurable media or media with a lower conversion for sale,” said Weronika Szwarc-Bronikowska, vice president of Media People about how the measure will potentially effect the entire media market.

Böbe Barsi

 

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