Over a hundred participants gathered at the European Parliament to attend the conference “How to adapt fiscal policies applying to cultural and audiovisual goods and services in the digital era?” organized by the European coalitions for cultural diversity on February 11th in Brussels.
Members of the European Parliament and members of the European Commission as well as representatives from the cultural and audiovisual sectors debated on how the digital revolution impacts and challenges the tax system applied to cultural goods and on how the Internet players could contribute to the financing of creation.
These exchanges exposed the urgent need to modernize the cultural tax system. They resulted in various proposals which could lead to a successful integration of the digital players within the framework of the funding and support policies.
Integrating digital multinationals into tax regimes and the creative economy in Europe
Trade globalization and the development of Internet have led to the emergence of digital multinationals (to mention only the top four: Google, Amazon, Facebook, Apple). Freed from territorial boundaries and national laws which soon became obsolete, these companies have used their multiple geographical locations to take advantage of tax regulations loopholes. While they generate significant profits in the EU, and should be expected to largely contribute to the Member States’ public budgets, they exploit rules in order to reduce the tax that should otherwise be paid.
In the European Union, the loss of revenue due to fraud and tax evasion schemes has been estimated to reach one trillion euros annually. Beyond the fact that it deprives governments of much needed budget resource in the current context of economic crisis, aggressive tax optimization gives multinationals an unfair advantage over other local and national companies which pay their taxes. An unfair competition which also affects the cultural sector: indeed, these multinationals do not contribute to the creation funding mechanisms, even though they provide cultural works and services and compete directly with the services already established. More generally, this practice raises fundamental questions on tax fairness and social justice.
A high-level expert group on taxation of the digital economy set up by European Commissioner Šemeta last November is currently examining the best ways to improve the tax framework for the digital sector, in order to protect Member States’ tax bases and ensure the principle of fair taxation. It should communicate its conclusions by next summer. It is a top priority on the decision-makers’ agenda. Then what can Member States and the European Union do?
Are we applying the right fiscal policy to culture?
Though harmonization of the VAT regulation at EU level brought some improvements, it remains widely unsatisfactory as far as digital services are concerned (VoD services, on-line music, e-books, etc). The current system, under which the provider is taxed in the country where it is established, led digital firms such as Amazon or iTunes to base their headquarters in Luxembourg, the country which boasts the lowest VAT rate in the European Union. This creates unfair competition conditions for other countries or other companies which are not based in Luxembourg.
This is a major problem, yet it is further aggravated by incoherent rules, since European law sets different VAT rates depending on the support to which they apply, for example on paper books or on digital books. Such discrimination cannot stand in view of the need for technological neutrality and convergence between physical and digital supports, and of the growth potential for the digital market.
VAT regulation is soon to be reformed, at least partially: as from 2015, the VAT on digital services will be due in the country where the consumers are established. This reform should solve many problems. Meanwhile, the cultural sector keeps on suffering from this imperfect legislation, driving Member States to set up derogatory rules to try and remedy this issue. For instance, France and Luxembourg have decided to apply a reduced VAT rate to e-books, a decision for which the European Commission launched an infringement procedure at the end of 2012.
Such a situation is unbearable and unjustified. It calls for the adoption of quick and concrete measures at EU level, before 2015. It is particularly urgent to ensure that works distributed through digital devices can benefit from a taxation system specific to cultural goods. It is of the utmost importance.
Read the summary of the debates
Read the press release