The value of the data economy will increase to 739 billion euros by 2020. Over the last seven years, the average growth rate of revenues of the leading digital companies has been around 14%, compared to around 3% for IT & Telecom and 0.2% for other multinational companies. At the same time, the effective tax rates of traditional companies were 23.2%, compared to only 9.5% for digital companies.
There are two main reasons, why digital enterprises often have a reduce tax burden:
Firstly, the value creation of digital corporations takes place everywhere and simultaneously, without a company necessarily having to have a registered office in the country in which it is economically active.
But many of the dominant big technology groups are also very active in the EU, for example in the collection and processing of data – a central component of the business model of many digital companies. International taxation laws, however, regard such companies as “routine tasks” that are not part of the value chain. For this reason, subsidiaries of digital companies often cannot be taxed in the EU.
Secondly, multinational companies have the possibility to shift profits through subsidiaries in a way that minimises their tax burden. To do this, subsidiaries in low-tax countries demand high prices from the parent company for the use of “intangible assets” such as software. Fictitious transfer prices are used to shift profits into tax areas where they are then only subject to very low corporate tax rates.