The impact of an EU digital service tax on German businesses

On 21 March 2018, the European Commission proposed a Digital Services Tax (DST) as a new tax on revenues resulting from certain digital business activities. Specifically, a 3% tax on:

• Online advertising revenues
• Seller/buyer fees to transact via online intermediaries/marketplaces
• Revenues from the sale of user data

In the Commission’s preferred option, a carefully selected subset of digital firms should face the DST, specifically firms with more than €750 million in global revenue, and having above €50 million in EU digital revenue. This could leave the impression that only global MNEs would be affected by the tax and ultimately leaving (most) German businesses unaffected.

However, in this study we find that:

• The tax burden of the DST – related to services provided to the German market – will at least partly, if not fully, be passed through to German businesses and consumers partly due to low margins.
• The DST is a distorting tax on the digital infrastructure that German businesses (most notably SMEs) rely upon to reach more customers at lower costs.
• The DST will impact a growing and important part of the German economy.

The study is commissioned by Bundesverband E-Commerce und Versandhandel Deutschland e.V.

On 24 October 2018, Bertelsmanns Stiftung – a German think-tank – and Copenhagen Economics held a seminar i Berlin discussing the future of taxation for the digital economy and how to promote the digital- and other knowledge-intensive industries in the EU. In this context, Partner Sigurd Næss-Schmidt recapped the key messages from our study on DST and outlined some of the key challenges that needs to be addressed in the context of getting a robust tax system in place which promotes the value creation and innovation at national and global level. Download the presentation from the event.