"Say no to extra taxes on digital companies"

Sweden needs to stand up and say no to all forms of extra taxation of digital companies, write Anne-Marie Fransson and Pär Nygårds at IT&Telekomföretagen.

The emergence of new digital businesses in Sweden is threatened if they are subject to special taxes. Instead, embracing and accepting the inevitable digital structural transformation that is now taking place is crucial, not only for Sweden but also for the EU.

At last week's meeting of finance ministers, both the European Commission's proposal for a tax on digital companies and the new compromise proposals launched at the last minute were blocked. Sweden voted against on the grounds that this type of major change to the tax system must be decided at international level.

Sweden's position in the EU negotiations is good, but there is good reason to keep a close eye on the issue. There are still those who want to introduce special taxes on digital companies, and delay the digital transformation that will eventually affect all businesses. Not only is this a bad idea, but a special tax on digital companies with a change in taxation principles would also reduce tax revenues for small and export-dependent countries like Sweden.

It's all about where the tax is paid. Most agree that corporation tax should be paid where the value is created, but this has proven to be a contentious issue. France and the European Commission argue that profits arise from sales, but the current tax system assumes that taxable profits arise where the product is developed, where headquarters and development departments are located, and where brands are administered - in short, where the costs of producing the product are incurred.

For Sweden and other countries dependent on a large export industry, a model where profits are considered to arise from sales and not from production would mean that a large part of the corporate tax base would disappear.

The value of a truck, for example, is of course created at several stages, but to claim that the profit arises when the car is started and not where it is designed, constructed and produced is as wrong as claiming that a newspaper only acquires value when it is bought. Everyone involved in producing the newspaper creates value, from the editorial team to the printing press or server room. It is not reasonable that this should be taxed differently if the newspaper is then sold digitally or on paper. For digital companies, value is also created where the service is developed.

Furthermore, an extra tax for digital companies is justified by the misconception that they currently pay less tax than traditional companies. A new study by Copenhagen Economics shows that the effective corporate tax rate for internationally active traditional large companies in the period 2012 to 2016 was 28%, while internet companies paid 29%. One reason for this is that internet companies are less leveraged than traditional companies and thus have less interest deductions.

New digital services make our lives easier in many different ways and increase productivity in businesses. This is something we should of course welcome and not penalize. Sweden and other export-dependent countries therefore need to continue to stand firm when it comes to saying no to all forms of extra taxation of digital companies. Introducing special tax rules for certain companies would be directly harmful to both Sweden and the EU.

Anne-Marie Fransson, Federal Director, IT&Telecom Industries

Pär Nygårds, Industry Policy Expert, IT&Telecom Industries