In the previous issues we informed you about the intention of the European Union to introduce digital tax across the entire Union. In March 2018, the European Commission published a proposal for a council directive regarding taxation of the digital economy, which included a proposal for the introduction of digital tax, among other things. Tax rate of 3 % which was proposed as a temporary solution was to be applied to gross sales of companies with global turnover greater than EUR 750 million out of which at least 50 million come from the European Union (you can find the whole article here).

Discrepancies at the EU level

The introduction of digital tax was met with significant problems because it requires a unanimous agreement, and some states do not agree with it. These are for example Ireland, Sweden, and Estonia. The European Union has not agreed on the implementation of digital tax or its alternative yet, and that is why some countries, including the Czech Republic, decided to act on their own.

Developments in Europe

Thus, the Czech Republic will join countries like France or Austria which are also planning on introducing digital tax on their own. France is planning to introduce a 3% tax on large international internet companies. And Austria is planning to introduce a digital tax of 5 % on advertisements.  It expects yearly tax revenue of at least EUR 200 million.

Great Britain announced the intent to implement tax on digital services last year already. This tax will be applied to profitable companies with global revenue of at least GBP 500 million per year, the rate is planned to be 2 % of sales.

Proposal by the Ministry of Finance

The Ministry of Finance is planning to release a legislative proposal on the implementation of digital tax in the Czech Republic. The proposal should aim at the biggest global players because it will concern companies with global revenue over EUR 750 million. The tax rate is planned to be set at 7 % for placement of targeting advertisements digitally by companies with the stated global revenue. The Ministry expects tax revenue of approximately CZK 5 billion.

This tax will be applied to internet services such as:

• digital placement of advertisement targeted at the user of the digital interface,
• using multilateral digital interfaces which – besides other things – may make easier deliveries of goods or provision of services among users,
• sale of user data collected in a digital interface.

Conclusion

Taxation in the area of digital economy is definitely a widely discussed topic, both at the level of the EU and in the Czech Republic. In the next issues of our newsletter we will keep you informed about the contents of the proposal and any relevant developments.

Veronika Džalavjan & Daniela Riegel