The Czech government has approved a proposal to impose a 7-percent digital tax on global tech giants such as Facebook and Google as of next year.
According to Czech finance ministry estimates, the new digital tax would deliver 5 billion korunas (€195 million) a year to the state budget. The law has yet to be approved by parliament and signed by the president.
Internet companies with a global turnover of over €750 million and an annual turnover for the taxable services performed in the Czech Republic of at least 100 million korunas (€4 million) would be subject to the tax.
The new law follows in the footsteps of countries like France, which recently imposed a 3-percent tax on companies like Google and Facebook.
Google, Facebook and Airbnb affected
That would place major global players such as Google, Facebook, Amazon, and Apple directly in the crosshairs of the new law.
The Czech Ministry of Finance proposes introducing a so-called DST model of digital tax, which the European Commission proposed earlier, but failed to implement within the European Union. The proposal is based on taxing selected online services, including targeted advertising, paid social media services, or selling user data.
Some digital economy platforms, which allow users to provide services and goods to each other for a fee, will also be taxable. These include services like Airbnb and Uber.
The proposed tax is to apply to online business revenue rather than being a tax on profit. Thus, the tax base will be revenues for services provided during the tax period, but only the part relating to Czech users.
The tax period would represent a calendar year, and the tax should be paid in monthly installments.
The Czech representative of Google refused to comment on the proposal but top Czech internet company Seznam.cz says it welcomes it. Smaller internet companies and local retailers are expected to benefit from the proposed law.
Potential issues for Czech tax
The Czech Chamber of Tax Advisers considers the proposal problematic due to the Czech Republic’s international obligations regarding double taxation of foreign companies. It also has reservations regarding the one month between when the law comes into force and when it becomes effective.
Martin Tuček, a tax expert from Moore Stephens consulting company, points out that the functioning of the digital tax act may be problematic in practice.
“Multinational companies may dispute the tax base, which will be difficult to determine, and may even refuse to pay it because it will not be sufficiently comprehensible to them. Therefore, there is a risk that the way multinational company understands the tax base will differ from how the tax office sees it,” says Tuček.