ifo Institute Opposes EU Digital Tax

The ifo President Clemens Fuest has voiced his opposition to the introduction of an EU digital tax. He criticised the “significant problems and negative consequences” of a digital tax. An additional burden on the digital economy would seriously hamper digital developments within the EU, Fuest said on Thursday in Munich in his presentation of an ifo study conducted for the Chamber of Commerce and Industry for Munich and Upper Bavaria. The study’s key criticism of the EU’s plans is their trade policy impact. “The USA and the other countries of origin of digital companies affected will view such a tax as a tariff. It will only intensify the trade war with the US,” warned Fuest. “Just because US companies sell digital services in Europe, this does not mean that they should pay income taxes here too. According to the rules on international taxation currently in force, taxes have to be paid where products are developed and produced, not where they are sold,” he explained. Tax avoidance by multinationals is a real problem, but it is not a phenomenon that is limited to the digital economy. 

The Chamber of Commerce an Industry for Munich and Upper Bavaria also warned against the adoption of such a tax. “The plans presented to date at an EU level are absolutely unconvincing,” said Peter Kammerer, the Chamber’s Deputy Managing Director. “The system change triggered by a digital tax towards the higher taxation of turnover would pave the way for our global trade partners to levy additional taxes on European goods,” he added. Bavaria’s economy sells over 40 percent of its exports to third states outside the EU. 

The author of the story is German Ifo Institute.