Earlier this month, the European Commission Executive Vice-President for Tech Sovereignty, Security and Democracy—Henna Virkkunen—confirmed that the European Union (EU) does not plan to levy fees on Big Tech companies to recover the high costs faced by EU antitrust regulators monitoring and enforcing the Digital Markets Act (DMA). Strong support for such a levy has come from Germany and gained traction in the European Parliament. This fee would be in addition to the massive fines already levied in successful prosecutions under the Act (e.g. Apple and Meta were fined hundreds of millions of euros earlier this year).
The EU Digital Markets Act is the leviathan legislation identifying “gatekeepers” deemed to have enough influence on their relevant markets that they must face additional operational constraints not faced by others in their sectors. Six gatekeepers—Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft—have been identified, with 22 core platform services provided by them becoming “designated.”
While the EU has long claimed to be pursuing competition in its markets and leveraging competition law-like tools to achieve this objective, the German call for the companies to be levied ex ante to pay for the costs of monitoring their activities draws far more from the regulatory toolkit. Industry-specific regulators are commonly funded by a combination of license fees (operating permissions) and industry-specific taxes. The obligations placed upon gatekeeper firms—e.g., mandatory third party interoperability and open access to data—are eerily reminiscent of obligations required of regulated telecommunications operators.
However, the prospect of taxing platform operators to recover Digital Market Act costs clashes with the implementation of broad-based digital services taxes (DST). These taxes are intended to address the leakage of tax revenues in a digital economy, where the company providing services does not have a permanent taxable presence in the jurisdiction where the services are provided. Already, 15 of 37 OECD countries have proposed DSTs, with several (including France, Italy, Spain and the UK) having already implemented them. Closer to home, several US states have proposals for imposing gross revenue taxes on certain digital activities.
DSTs are levied on the basis of worldwide revenues for a far broader range of firms than is proposed to be captured by a DMA-specific tax; thus, they appear to be a broader-based and fairer means of funding legislative enforcement of competition laws than a specific charge on a handful of administratively-determined firms—before evidence of anticompetitive activity has been identified. However, as the OECD Base Erosion and Profit Shifting (BEPs) project has noted, implementing such taxes is far from straightforward. Each DST is different, leading to administrative burden, risk of double taxation and uncertainty as to how the DST works alongside other legislation (e.g., the EU Digital Markets Act). The OECD and its G20 partners would prefer agreement to the terms across all countries (its Pillar One Proposal) with a rate to be determined. Common rules will remove the potential for a “rogue state” to create a “tax haven.” However, agreement has not yet been reached, so Pillar One remains a proposal.
Nonetheless, many countries have already implemented DSTs with the expectation that these will be repealed when Pillar One is adopted. Initially, there was considerable enthusiasm for these taxes. However, the nearer a Pillar One agreement appears, the more muted the enthusiasm becomes. Many countries that have explored such a tax—such as Canada and New Zealand—have opted to back the OECD process instead. However, both France and the United Kingdom have implemented a DST. Figure 1 shows how France’s 3 percent DST applies to firms exceeding national (€25 million) and global (€750 million) revenue thresholds. A hypothetical company with 10 percent of its users in France and global revenues of €1 billion would be liable for €3 million on the (above threshold) €100 million French revenues.
As the companies subject to the Digital Markets Act are almost certainly subject to other EU countries’ DSTs due to their scope and exceeding the thresholds for consideration, an argument exists that they are already contributing disproportionately to the costs of competition law compliance in those countries, making any additional taxes an excessive and unfair burden. Hopefully, this is the logic that underpinned Ms. Virkkunen’s recent ruling-out of additional taxes. While pinning one’s hopes on 140 countries agreeing to Pillar One may be optimal, it may yet prove unimplementable, bringing selective taxes back onto the table.
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