German Chancellor Angela Merkel proposed a big data tax that would treat data as a raw material used in production at this week’s Global Solutions policy forum in Berlin.
The proposed reform is intended to reduce tax disparities between digital and traditional companies.
“The pricing of data, particularly the data of consumers, is the central issue that we need to solve in order to ensure a fair and equitable world of the future,” Merkel said.
With this week’s implementation of the General Data Protection Rules (GDPR) throughout the EU, an intersection of politics, business, and privacy is receiving global attention from the governments of other countries, regular citizens and privacy advocates, and international corporations that may be affected by changes in rules and regulations.
GDPR is intended to ensure that individuals are aware of what data is being collected, and how personal data is stored, used, and transferred. While sometimes criticised as putting too great a burden on companies, it is now being watched closely by the international privacy community.
In fact, Microsoft has expanded the GDPR rights of its EU customers to all customers worldwide, according to a statement issued earlier this week.
Merkel’s big data tax proposition is based on the idea that intangible data has a tangible value as a raw material, used in conducting business in the modern environment. She called upon researchers from several think tanks and policy groups attending the forum to create concrete proposals to determine the value of data, and tax it as a material used in production.
The intention for creating a data tax is to close the gap between traditional business models and digital business models; creating a fair and equitable standard that involves an understanding of the true value of big data in the current business world.
Taxation of digital enterprises has been a topic of much discussion throughout Europe, with companies such as Apple, Facebook, Google, and Amazon facing charges of tax avoidance for funnelling sales through countries with attractive, lower tax rates. Billions of euros in back taxes are currently being repaid to countries by tech giants that used multinational structures to avoid paying higher tax rates in the countries where taxes were due.
In January, French President Emmanuel Macron called for countries throughout the EU to cooperate in creating a comprehensive big data policy, to better compete with American and Chinese markets. Macron, however, did not address tax reform for digital businesses at that time, focusing more on levelling the playing field between European businesses and international competitors.
EU Digital Tax Plan
In March 2018, the EU unveiled a digital tax plan to address tax avoidance as well as an estimated tax inequity, as EU officials estimate that digital businesses pay an average effective tax of 9.5%, compared to traditional businesses that pay 23.3% on average.
The EU Digital Tax Plan proposes a 3% tax be levied on the sale of user data. The tax is expected to generate €5 billion per year for EU member states, and help to balance the tax disparity between digital and traditional businesses.
The idea that data has value in itself is becoming more accepted among individuals as well as organizations and enterprises. Facebook is currently facing intense public scrutiny for data gathering practices, as people become more concerned with what information is gathered and kept, and what is done with personal information once it is in a corporation’s grasp.
The value of data is also expressed in its uses, both legal and illegal. Data is stolen by hackers and resold on the dark web; data is held for ransom by malicious entities, and people pay to retrieve it; and data is legally gathered, bought and sold to be used for targeted advertising, political analysis, healthcare (public and private), science and research, and law enforcement organizations.
While the EU Digital Tax Plan and Merkel’s proposed big data tax are both based in the understanding that data has value, there are marked differences between the two ideas. The EU Digital Tax Plan addresses the sale of data only, leaving it to corporations to assign value to the data being sold. Merkel’s plan to treat data as a tangible raw material faces the challenge of an overarching, comprehensive data valuation by the government instead. Additionally, there is debate over whether data itself has actual value, or whether the value is in the algorithms used in data analytics, or in the business application and results garnered through data analytics.