AmCham Czech Republic argues that the Ministry of Finance’s proposed Digital Service Tax will have a negative impact on the economy, and be an ineffective tool for taxing the global digital service industry. In its comments to the Ministry of Finance, AmCham suggested the best course would be greater diplomatic involvement in the OECD effort not only to introduce a fair means to tax the digital economy, but also to eliminate tax havens.
“When we look at any issue, our main concern is whether it will help or hurt us in becoming a top ten economy in the EU,” Michal Chour, the newly appointed President of the Amcham explained. “Tax systems do need to be modernized to handle intangible assets sold globally, but this proposal will likely cause more economic losses than any gain in public revenue is worth.”
The government wishes to impose a tax of 7% of estimated Czech turnover on large multinational digital service providers. The tax, however, is likely to be passed to Czech businesses advertising their products to Czech residents.
“At the end of the day, Czech companies which want to market online will pay the tax, digital service providers will collect it, and the state will benefit,” Michal Klimes of HPe, an AmCham board member who helped review the proposal, explained, “That seems at best a neutral impact on the economy. This does not seem to address either the digital economy or tax havens effectively.”
The tax would also introduce two major economic threats. The United States has already threatened tariffs on a similar tax imposed by France. The Czech tax would likely also attract retaliation. In addition, the decision to impose an unusual tax despite the clear risk of escalating the trade conflicts now simmering around world could change how major investors view the country.
“Investors value predictability as much or more than low tax rates,” says Alan Rassaby of Avast, who was the board member responsible for supervising AmCham’s review. “We really value the predictability and stability of the Czech tax system despite the fact that some other places have lower taxes. Now investors are going to be watching to see if this marks the start of a more volatile tax policy, especially if the new tax provokes US retaliation.”
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