Countries that are among the wealthiest in the EU have already surrendered most of their advertising revenue to foreign platforms, meaning less money for investigative journalism and all manner of quality content, Mart Raudsaar, head of the Estonian Association of Media Enterprises, writes.
I believe that people my age and older still remember Soviet criticism of colonialism, of how capitalist countries exploited former colonies, robbing them of natural resources, while leaving behind primitive industry and pollution.
Leaving aside the fact that Soviet propaganda was blind to the domestic problem (of pigs in the ESSR, only the squealing remained in Estonia after the rest was exported, as the contemporary joke went), it did have a point about the exploitation of developing nations.
The development of information technology and sharing economy has paradoxically led us into a new era where most EU member states, including the Nordics and Estonia, have fallen victim to similar exploitation in the field of media and communication, among others.
I'm talking about the effect of major internet platforms, like Facebook. Of Facebook's activities in the Nordic countries, only the squealing is left behind so to speak as profits made in the EU are declared in Ireland where taxes are favorable.
The result of this is unfair treatment of foreign and domestic companies. In Estonia, for example, local media companies paid €26 million in taxes (labor, VAT etc.) in 2018, while Google, Facebook and another ten internet giants paid Estonia a total of €5.8 million in VAT.
This practice of the big fish living at the expense of the small fish is so unfair that we should a) additionally tax internet giants in Estonia or b) introduce lower taxes for media enterprises in the EU or exempt them from paying some taxes altogether.
The European Union is working on a reaction, following an ECOFIN decision from last year that allows VAT incentives for digital publications: 18 member states have or are about to lower VAT for media publications (6 percent in Sweden, 10 percent in Finland), with Bulgaria and Latvia the only two members not planning to follow suit in the near future, according to information available to the Estonian Association of Media Enterprises.
But no one seems to be planning VAT hikes, which, rumor has it, is being considered as one possible scenario in a Ministry of Finance memorandum from a few weeks ago.
Solutions actively sought
As we can see, this is not a localized problem for tiny Estonia and solutions are actively being sought by individual member states and the EU as a whole. The problem is not just missed tax revenue but rather domestic advertising markets drying up.
Jonas Ohlsson of the University of Gothenburg presented to us an advertising expenses survey during a Nordic publishers meeting in 2017. The economy was recovering and several cranes could already be seen towering over Copenhagen. But unlike during previous periods of growth, the advertising revenue of domestic media organizations was not growing.
I learned the same thing from CEO of Henneo Group Carlos Nunez about the Spanish market in the summer of 2017.
Allow me to give an example from Ohlsson's report regarding Norway that is one of the most successful Nordic countries, financially speaking.
If in 2008, the revenue of foreign media platforms made up one-sixth of that of domestic counterparts, the two were all but equal by 2016.
The result is a situation where countries that are among the wealthiest in Europe are already surrendering most of their advertising revenue to foreign platforms, meaning less resources for investigative journalism and all manner of quality content – which is expensive – and media companies turning to side activities or working on projects where profitability takes precedent over content.
Unfortunately, I cannot say Estonia is better off compared to the Nordics or the rest of the EU.
Both the OECD and the EU have for years been looking for a solution to this so-called neocolonialism problem where revenue is generated in one country, while benefits are moved and taxes paid elsewhere in which process unfair competition hits an entire industry of the initial country (whether it's the media, hotels or commerce).
Plurality of opinion as a pillar of democracy
Even though there is consensus that existing rules are no longer effective and a global initiative for new tax regulation has been agreed on in the first time in a hundred years since 2013, countries' conflicting interests have not made it easy to put into practice.
The first reason is simple. While regulation would benefit most countries, it would also hurt a few. Secondly, it has not been easy to draw a line that would spare domestic companies and media organizations' own digital solutions while taxing foreign platforms.
Because there has not been a solution from the OECD, the EU has tried to take the initiative and has even arrived at a sensible methodology for a temporary solution until a global agreement is reached.
Unfortunately, the latter also got stuck in March of last year on account of opposition from a few member states, notably Ireland. That is why several member states – France, Italy, Austria and the Czech Republic, but also the U.K. – have decided to lay down their own digital taxes based on the EU methodology.
Because international online platforms do not constitute journalism and cannot replace it, the Estonian Association of Media Enterprises finds that Estonia should plan tax incentives (first and foremost, a lower VAT rate for digital subscriptions) and discuss a unilateral digital tax based on EU methodology.
If the press can generate additional revenue and is given more equal opportunities on the advertising market, it will be able to better invest in investigative journalism and pursue digital innovation, both of which are expensive to do.
Our press would also be better able to take responsibility for the quality of content and address important topics in terms of the longevity of our people and state. Let us also recall that plurality of opinion – that journalism ensures as the free marketplace of opinion – is one of the pillars of democracy.
P.S. The headline of the comment aims to paraphrase the idea that if we do not want to pay for an army, we will soon be paying the upkeep of an occupying force.
Editor: Marcus Turovski