Digital services tax to bring Estonia €10 m annually, but also new expenses

Smartphone. Source: Huko Aaspõllu/ERR

At an OECD summit this week, 138 countries resolved to delay the taxation of digital giants such as Google and Facebook until 2025. The tax would generate about €10 million for Estonia, but it would also incur additional expenses.

Helen Pahapill, an advisor to the Ministry of Finance, said that the process of drafting the agreement has taken a very long time and that the pledge by the countries to freeze unilateral digital services duties on digital platforms until 2025 is encouraging, as it indicates that an agreement is close.

"In 2021, we agreed to delay this action until the end of 2023 because we were confident that in 2023, we would be able to execute a multilateral international agreement that would allow all nations to begin taxing the world's largest corporations in the same way. This agreement is not reached, but the OECD secretariat was quite optimistic that this would be settles within the next few weeks," Pahapill said.

The OECD tax treaty links the taxation of global digital giants with the implementation of a 15 percent minimum tax rate for major global corporations.

The content of the minimum tax has been previously agreed upon. "However, taxing digital titans has proven to be much more difficult than anticipated. It is fair to say that the United States must deal with the distribution of the primary tax revenue, and there are countries that believe they receive insufficient amounts. There, a compromise must be reached."

The digital tax threshold pertains to companies with profits exceeding €20 billion; there are approximately 100 such groups worldwide.

"And not all of their profits will be distributed to the market countries, i.e. the countries that consume the services. First of all it must be determined how profitable they are. If their profitability exceeds 10 percent of their revenue, 25 percent of the share above 10 percent will be distributed, according to certain criteria, to the countries where, for example, the advertisers, consumers of certain products, and purchasers of services through the platforms were located," Pahapill said.

Helen Pahapill. Source: Arp Müller/ERR

Estonia must have the capacity to participate in tax collection

Pahapill pointed out that, however, for Estonia, as a country that would only benefit from the implementation of such a tax, it is not just about taking money. Estonia must also have the capacity to participate in the process of collecting the tax.

"If Google, for instance, claims that Estonia has the right to tax two million of its profits, we should at least be able to assess whether Google's calculations are accurate. Google wants certainty, and this agreement provides also the taxpayers with the certainty Google wants," she said. That would mean hiring nearly 10 additional officials.

Pahapill estimates that Estonia's prospective tax revenue is around €10 million. The global tax base, as estimated by the OECD, would total €240 billion. If Estonia's tax revenue reached €10 million, this would entail taxation of €50 million at 20 percent, a rate that every nation has the right to implement.

National parliaments must also endorse the agreement. Such agreements require a two-thirds majority vote in the United States Senate, so its passage is improbable.

According to Pahapill, the small population of Estonia must be taken into account, as a result of which the state would not receive a substantial amount of tax revenue under such an agreement. "We are left with the moral satisfaction that perhaps the world has become a little bit fairer," she said.


Follow ERR News on Facebook and Twitter and never miss an update!

Editor: Barbara Oja, Kristina Kersa

Hea lugeja, näeme et kasutate vanemat brauseri versiooni või vähelevinud brauserit.

Parema ja terviklikuma kasutajakogemuse tagamiseks soovitame alla laadida uusim versioon mõnest meie toetatud brauserist: