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Transatlantic Blog

A digital tax will deny Europeans new innovation and progress

Bureaucrats at the European Union steadily struggle for tax harmonization among EU member states. Unfortunately, they do not seek to relieve these nations’ tax burden but rather to warn against “tax havens.” Along these  lines, last year the European Commission (EC) came up with the idea of a “digital tax.”

In the name of pursuing the “fair taxation of the digital economy,” the EC made two proposals: 1) taxing tech companies’ profits “where businesses have significant interaction with users through digital channels,” regardless of whether they have a physical location in that nation; and 2) taxing “the main digital activities that currently escape tax altogether in the EU.”

The lack of consensus among the governments may lead the EC to withdraw those proposals. Whereas countries like Spain and France support the idea (and have advocated similar measures), the Irish, Swedish and Danish governments opposed the “digital tax.” Nevertheless, Brussels supports the OECD’s ongoing work to tax technological companies.

Last January, the OECD announced that “the international community has made important progress toward addressing the tax challenges arising from digitalization of the economy and has agreed to continue working multilaterally towards achievement of a new, consensus-based, long-term solution in 2020.”

In a press release, the organization promised to focus on “how the existing rules that divide up the right to tax the income of multinational enterprises among jurisdictions … could be modified to take into account the changes that digitalization has brought to the world economy.”

It comes as little surprise that tech companies such as Amazon, Facebook, Uber, and Google protested the new tax. But so should everyone else. These taxes are not a good solution if we want Europe to lead new technological innovations and become a more prosperous continent.

Most leading tech companies are American or Asian, not European

The world’s top 10 technological companies do not include a single European entity, according to the 2018 edition of Forbes Global 2000 List. Seven are American (Apple, Microsoft, Alphabet, Intel, IBM, Facebook, and Oracle),while the rest are based in Asia (Samsung, Tencent Holdings, and Hon Hai Precision Industry Co.).

The only famous tech service that comes from Europe is Skype, which was written by a group of Estonian software developers. This is not a consequence of blind fate. What are the specific causes?

The United States, South Korea, and Taiwan score high on the Heritage Foundation’s Index of Economic Freedom. Not only are their economies mostly free, but they are significantly freer on average than their European counterparts. The average tax burden in Europe is higher, and individual countries (such as France, Spain, Italy, and the Nordic countries) have levels of taxation or regulation proper to “moderately free” or “mostly unfree” economies.

The EU has punished competition and users’ free choice

Google is the most used search engine in the world, except China. In all, 74 percent of internet searches go through Google, according to NetMarketShare. Competitors such as Bing and Yahoo have less than 10 percent of users. Most people think the Mountain View-based service gives them the most relevant results.

Most users run Microsoft Windows as their operating system. Most smartphones have installed Android, a Linux-based system that is developed and maintained by Google. What has been the most common response of EU politicians?

Many times they have charged Northern American companies like Google and Apple with “monopolistic” practices, although their “hegemony” is based on millions of users’ preferences. They went as far as to try to launch their own alternative search portal. Some 14 years ago, French and German leaders Jacques Chirac and Gerhard Schröder released a publicly funded alternative to Google named Quaero. But ultimately it failed, in part because of disagreements over its development and lack of interest from Angela Merkel.

Even when systems are offered, so far none has toppled the big tech companies from their respective perches. Nobody is prevented from using competitors’ products like Ubuntu Mobile, DuckDuckGo, Debian, or Tails. The fact that few choose to do so is of little concern.

A more innovative Europe should steer clear of regulations and new digital taxes

If we want to live in a Europe that can attract more technological companies and lead the development of new projects, we should not try to confiscate tech profits via taxation. Their actions will be more profitable than the huge amounts of (often corruptly invested) EU funds, which have not boosted any kind of economic growth in the continent.

EU nations need to repeal regulations, open up restrictive trade laws, and reduce taxes. We should not promote any kind of continental tax “harmonization.” Bureaucrats ought to let member states compete to attract investment from new companies. Decentralization is more prone to bring growth and economic freedom than socialism and centralization.

Proper human flourishing cannot come from nations following Machiavellian policies to maximize their concentrated economic power. Development of technological industries must open new avenues for entrepreneurship, which aims to serve the needs of our fellow citizens. People may serve society by using these new platforms to discover new ways to boost productivity, make life easier for disabled people, improve medical procedures, and numerous other fronts.

A lighter economic burden, and a less restrictive environment, facilitates technological advancement and yields new discoveries to benefit all God’s creation.

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Ángel Manuel García Carmona is a student of computer engineering in Spain. You may follow him on Twitter at @GarciaCarmonaAM.