The proposal to impose a fresh taxation on the largest digital companies is 1 of the possible options for regulating this sector. [...] The digital taxation would be charged to 7% of revenues obtained in Poland from entities exceeding EUR 750 million globally consolidated revenues, EUR 4 million revenues in Poland, and with 500,000 users.
The fragment comes from the Instrat Foundation report: "Digital taxation from giants. Expert on the introduction of a digital taxation in Poland (DST)".CC BY-SA 4.0 license.
1. Digital taxation as a regulatory instrument
The dynamic improvement of information technologies has enabled global corporations capable of expanding worldwide markets with minimal marginal costs. The products and services of companies operating in the digital space, frequently called digital platforms due to the key resources of these companies, which are multilateral interfaces for net information infrastructure, have importantly improved quality of life and have enabled socio-economic development. All sectors of the economy in developed countries and most developing countries present benefit to any degree from digital communications, availability of cloud resources and specialised platforms.
Social media and applications have besides permanently entered our lives, changing social relations and forms of communication.
At the same time, 2 decades after the detonation of the net bubble (dot-com bubble) the digital marketplace scenery in the planet has changed significantly. Competition between companies combined with financialisation of the economy and capital flows conducive to investment in the most predatory business models (Toporowski, 2018) led to a situation where The gap between productivity and the scale of global technology leaders operations and the remainder of marketplace players has increased dramatically (Andrews, Criscuolo, Gal, 2016). In the case of Europe, including Poland, the consequence is the provision of products and services to citizens by entities mostly from the United States or China which use taxation gaps and the intangible nature of their resources to avoid taxation. The largest digital platforms besides usage their interfaces to transforming user activity into free, unpaid work, thus benefiting undetectedly.
The discussion on the regulation of this sector has been ongoing for respective years. First, she was curious in dormitories who investigated the causes of digital platform effectiveness and their business strategy in the context of impact on society.
However, in 2020, regulatory issues are already the subject of lively political disputes, indicating the formation of a fresh consensus, besides called a fresh digital governance.
The mix of public policy in the area of the digital economy varies according to the adopted imagination of the improvement of this sector, so it is naturally of a different character in Washington, where discussion on the dissolution of native monopolies is guided by concern for the competitiveness of the interior marketplace and another in Brussels, where the analysis of the impact on the privacy and fair distribution of these companies to the economy prevails.
The proposal to impose a fresh taxation on the largest digital companies is 1 of the possible options for regulating this sector. In the basic proposal This taxation is intended to apply only to sufficiently large platforms whose turnover and number of users indicate a crucial economical impact. Certainly, this instrument cannot be treated as a adequate solution, but it can importantly contribute to reducing problems related to digital giants' activity and expanding backing opportunities essential for the improvement programmes' public and information economy.
1.1 economical policy benefits
1.1.1 Retirement tax
The focus of companies operating on the digital marketplace is far advanced. For example, excluding the Chinese marketplace (as a separate internet), the Facebook and Alphabet (Google) advertising marketplace controls 84% of spending and Amazon controls more than 15% of planet e-commerce, in any markets specified as the US, but liable for half of all online purchases (Statista, 2020). Digital giants have not only a share of the 1 marketplace in which they dominate, but by active investment policy and buying out both start-ups, established rivals in the digital market, and companies on adjacent horizontal and vertical markets consolidate in the capital group sometimes completely different business lines. Alphabet owns Google and Youtube platforms, but besides Android software for smartphones or hardware and Google Home's virtual assistant. Amazon, AWS (cloud service provider), Amazon Prime Video (voD platform), Kindle (e-book reader), Echo and Alexa (voicer and virtual assistant) and full Foods (supermarket) belong to a single capital group. likewise Facebook, Messenger, Instagram and Whatsapp have 1 owner.
Social media, most of which make gross from profiled advertising, has besides become concentrated.
In order they are: Facebook (2.5 billion users), Youtube (2 billion), WhatsApp (1.6 billion), Messenger Facebook (1.3 billion), WeChat (1.2 billion), Instagram (1 billion) and TikTok (0.8 billion). Applications specified as Uber or Airbnb are besides so common that erstwhile measuring the number of users supported and offers they declassify conventional business branches. Behind these undisputed giants is naturally a number of another known platforms that aspire to dominate the selected marketplace or its segment.
Depending on the platform, we can deal with a monopoly (closed ecosystem of social media) or oligopoly (in case of crucial impact of platform decisions on another companies by having a large marketplace share). The monopolisation of the digital economy has a negative impact on innovation and weakens the competitive "creative destruction". The expansion of digital platforms in the first series truly increases productivity significantly, as the possible of digital technologies is utilized in products and services of many industries (as a general application technology). However, the increased monopolistic concentration discourages little productive companies from investing, which besides leads leading companies to redirect the fund from R & D & I to taking over and blocking competitors (Aghion et al., 2018). Eventually smaller local companies are losing in this unequal competition, and monopolists utilizing their position charge higher fees in the form of an economical pension (Aghion et al. 2019).
The economical advantage is the cost exceeding the ‘normal level’ of costs in a competitive market, which is greater than the decent remuneration of the social contract for the work put into production and maintenance of infrastructure. For digital platforms, An economical pension is applied to the network – the size of the network, i.e. the dependence of users on the platform for communication, allows for a greater extraction of value (Zygmuntowski, 2018). The economical literature considers ad valorem taxes to be an effective tool for reducing the economical pension, especially in the case of pensions on natural resources or land (Schwerhoff, Edenhofer, Fleurbaey, 2019).
The imposition of taxation on the digital platform should not be analysed as the imposition of taxation on the company, but on a multilateral marketplace (multi-sided market).
Even digital giants can so choose to reduce their pension (and consequently margin) if the transfer of taxation to the request side or the supply platform would consequence in the failure of affirmative net effects, in peculiar cross-effects (Belle-flame, Toulemonde, 2016). Therefore, the ad valorem tax, combined with social control and competition rules, should be an effective instrument to level the chances in the digital marketplace and slow the expansion of the monopolist.
1.1.2 Socialisation of economical value of data
Data collected by digital platforms do not only have a safety or privacy dimension. Data is utilized by platforms to improve interfaces, algorithms, make fresh products and services and improve the quality of existing ones, specified as software updates through cognition of its uses or training AI on data collections. If the company derives economical benefits from the data, they themselves have the economical value which arises from the merger in the production of capital and labour.
The capital here is the platform itself, but the unobvious component is the human information work.
Acceptance, analysis of content and consequence to it are active human activities. If they make environmental value, they are information work, which may take the form of:
- Symbol analysis – designation and processing of content utilizing cognitive brain resources (commonly referred to as ‘notice’),
- communication — communication of information and data,
- Affect manipulation – intentional usage of Emotional Expression (Hardt, Negri, 2005).
Economists and social researchers have given quite a few attention in fresh years Unnoticeable work, performed e.g. in the form of playbour and the usage of digital platforms (Fuchs, 2016).
Many platforms openly communicate the usage of user-generated content or crowdwork to make their profits.
In this sense use of digital platforms is not free, since a fee is charged in the form of information work data. In the light of EU law and the case law of the European courts, the deficiency of clear, complete information on the extraction of data values constitutes unfair marketplace practice towards the consumer and is subject to consumer protection law (see e.g. EC, SWD 163, 2016; TAR Lazio 261/20, 2020).
A digital taxation is so a way to recovery of part of the value collected by the largest digital platforms, i.e. beneficiaries of unpaid information work. This is the same as the fact that, in the event of a share of users exceeding a sufficiently advanced threshold, the company bases its gross for this work significantly. The appropriate legal plan of the tax, recognising the place of performance of the service (e.g. conducting campaigns utilizing profiled advertisements) in the country where the user of the platform is located, will let to collect the taxation if the advertiser is in another country – but its advertisements are addressed to Polish citizens.
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1.1.3 Compensation for aggressive taxation planning
The link between taxation avoidance and the digital marketplace is crucial that digital platforms in peculiar can exploit the weaknesses of the right to aggressive taxation planning and the simplification of taxation avoidance. Digital companies use, above all, intangible assets whose valuation and characteristics (e.g. geographical location) are highly disputed. This way digital platforms can move their assets, usage transfere prices to manipulate costs and study profits in comparatively lower taxed jurisdictions, Although operating in a state of wealth with higher taxation rates (UNCTAD, 2019).
It is not hard to see that digital platforms can be registered formally in taxation havens or countries applying circumstantial taxation dumping, charging in these jurisdictions, but operating in another countries via the Internet. Even if the company records activities in a country that cheats on CIT, it does so mainly for the employment of local lobbyists, marketing departments or smaller operations, which aims to show any gross to complicate the analysis of the links between companies in the group and taxation receivables.
Tax avoidance and taxation fraud in EU countries leads to losses of up to EUR 170 billion per year (PIE, 2020). W In 2017, the Polish CIT gap exceeded PLN 20 billion per year, which exceeds 1% of our country's GDP (PIE, 2019).
The situation on the Polish online advertising marketplace is simply a crucial example of how the CIT gap arises.
Facebook Poland and Google Poland study a turnover of PLN 434 million. At the same time, however, Facebook and Google platforms control more than 50% of the marketplace worth PLN 4.5 billion, so their gross in the advertising section should be at least PLN 2.3 billion (Wójcik, 2020). DeClarified gross is so more than 5 times lower than real gross in the Polish economy (further calculations in chapter 4 of the expert opinion).
Introduction of a digital taxation in the form of an income taxation will compensate aggressive taxation planning These companies. The majority of large companies in the digital marketplace have an operating margin of 25-70%, i.e. very advanced to completely unparalleled in another sectors of the economy (average operating margins scope from respective to respective percent). If the platform declared all gross according to the real state, the Polish CIT taxation of 19% for the operating margin of 40% (such as Facebook) would effectively charge the company to the same degree as the turnover digital taxation of 7.6%.
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Join us!1.2. The OECD proposal and Poland
In 2013, OECD and G20 countries adopted an Action Plan on the BEPS project.
The 3 main pillars of this plan included: the introduction of coherence in national taxation rules affecting transnational activities; the strengthening of global standards; and the improvement of transparency and legal certainty. OECD investigation and recommendations in subsequent years have increasingly focused attention on the mechanisms utilized by companies operating in digital markets (OECD, 2018).
The ongoing work in the OECD was the reason why the EC suspended its March 2018 Digital taxation proposal. The turnover taxation on globally and regionally crucial digital giants has been translated as a coherent proposal, but Brussels has moved the discussion to the OECD. The OECD proposal suggests a improvement of the full CIT system, consisting of a first pillar, i.e. fresh rules for the allocation of profits as a taxation base, and a second pillar, i.e. an global minimum tax. According to the first pillar, the profit of the capital group would be divided into regular (routine) profits, allocated to the country where the company’s head office and its non-material assets are located; and to the profit of the remaining (residual), allocated where the sale of goods and services is led. The allocation of regular and residual profit is defined as amount A, amount B concerns the establishment of minimum taxation revenues from marketing and distribution activities, and amount C covers disputed areas (OECD, 2019).
The OECD Plan is criticised, among others, by ICRIT, a committee represented by respected economists and economists specified as Thomas Picketty, Joseph Stiglitz and Jayathi Gosh, or G-24, or a forum of developing countries cooperating with the OECD. The allocation of the A-amount is not beneficial to them, and the fresh rules inactive contain many disputed provisions. As G-24 comments:
“This approach allocates any “over-normal profits” to marketplace jurisdiction regardless of the company’s physical presence. However, no part of “normal profit” is allocated to jurisdiction even if the company has a crucial economical presence but has no physical presence (...)
The challenge of digitization besides refers to average or regular profits of the company.
Therefore, according to preliminary indications, additional net receipts to developing countries in the amount And they will be minimal... Furthermore, the proposal ignores the fact that taxpayers can circumvent the fresh rules of jurisdiction by distant presence to supply goods and services and by performing marketing and distribution activities from low taxation jurisdictions" (G-24, 2019).
The above interpretations are applicable for Poland, which is being treated as a developed country, but there are compelling reasons for treating our economy as inactive semi-peripheral. In particular, G-24 notes that the OECD proposal does not take into account the specificities of digital platforms and their extraction of data generated by users.
“The digital economy enables a fresh model of value co-creation, including consumers/users as an unconscious, key counter-butter and value maker. Any method of profit allocation to respond to the challenges of digitisation must take account of and address this problem" (G-24, 2019).
The proposal for a Polish regulation contained in this study is based on the solution provided by the EC in the proposed draft Council Directive on a common strategy of digital services taxation collected on revenues resulting from the provision of certain digital services. This task envisages temporary solution, allowing the OECD to impose a comparatively simple taxation until uniform solutions are established at global level. This model is based on a circumstantial indirect taxation levied on the consolidated revenues of service providers (Digital Services Tax). The option previously indicated by the European Commission, which provides for a long-term solution, is to modify CIT by modifying the definition of a permanent (foreign) establishment and creating a common consolidated corporate taxation base. specified complex regulation, however, would require crucial investments, modifications of fundamental principles for the Polish taxation strategy and comparatively long transitional periods provided for by the law – it would be hard to introduce it. In view of the incompleteness of the OECD proposal, many EU countries have taken their own digital taxation actions based on the work of the EC.
