The digital economy is distinct from other sectors due to its immaterial and international nature which renders ineffective classical taxation models. Currently, the Organization for Economic Cooperation and Development (OECD) grants the right to tax profits to the country in which the company has its head office rather than that in which it performs its business activities. It is therefore easy for companies to transfer their profits to tax havens where they set up their head office whilst carrying out their activities in places where they are not taxable.
A report published on 18 January 2013 [1] suggests redefining the notion of “permanent establishment” in order to facilitate the taxation of companies in the digital economy, including by countries in which the firm is not physically based. Recognizing the essential role of the exploitation of personal data in the digital economy, the report suggests introducing a tax on the collection and exploitation of this data by companies. This approach would allow firms to be taxed whether based in France or elsewhere provided that they were using the personal data of French users.
This proposition is particularly aimed at firms who undertake a regular and systematic appraisal of their users’ activities. It is justified as a reasonable contribution to be made by firms towards public expenditure based on the fact that the personal data they exploit is obtained freely thanks to public outlay which gives users access to the network.
Taxing companies in the digital market is recurring theme and various propositions such as the “Google Tax” have already been made without being implemented. Now a tax criterion is being proposed which aims to promote both a control mechanism for the exploitation of personal data and a means to safeguard innovation. This would be achieved by a new R&D tax which would favor the creation of new companies.
The idea is innovative and merits further consideration. The challenge is to find a fair tax threshold!
This tax on personal data is initially proposed at a national level, but its effectiveness also requires international consensus, and in particular the support of the members of the OECD. France was due to broach this proposition during the last G20 summit but the next steps and the reactions of the member States are still awaited.
[1] « Mission d’expertise sur la fiscalité de l’économie numérique » “Research on a tax system for the digital economy”, Pierre Collin and Nicolas Colin, Report to the French Finance Minister, the Minister for tax recovery, the Chancellor’s budget representative and the Department for small and medium-sized companies, innovation and the digital economy. P1.
http://www.redressement-productif.gouv.fr/files/rapport-fiscalite-du-numerique_2013.pdf