EU-wide digital services tax could make system worse, warns pan-European think-tanks

An EU-wide digital services levy would distort the bloc’s tax system and introduce extra bureaucracy, a pan-European group of think-tanks has warned.

A report by the European Policy Information Center [CORR] – made up of organisations from nine European countries including the UK’s Institute of Economic Affairs – raised concerns that in the drive to be seen to be taking action against digital companies, politicians will make the situation worse.

The EU’s plans for a digital services tax took a knock in December when France and Germany proposed a watered down version of the levy.

Paris and Berlin wanted a 3% tax on advertising sales only, not total revenue as originally envisaged.

The European Policy Information Center’s report argues: “The Digital Services Tax would render the EU’s tax system even more complex without tackling the underlying tax issues.

It added: "Given that the Commission and national governments have so far failed to provide comprehensive impact assessments, any lawmaker should be wary about the long-term implications of the proposed measures and the path dependency in corporate taxation, i.e. that tax complexity usually created further tax complexities."

In his autumn budget, chancellor Philip Hammond announced plans for a 2% tax rate on sales that large digital companies make in the UK be introduced from April 2020.

A Treasury spokesperson said: "International corporate tax rules haven't kept pace with the digital economy. We want to see global reform of those rules, and until then our Digital Services Tax is a targeted, proportionate and interim response to this challenge."