The Digital Tax is coming to Czech Republic after the Czech Ministry of Finance voted yes to a 7% tax on American Internet companies. The European Commission had a similar proposal in 2018, and more European countries will most likely follow suit.
In Czech Republic the government expects to put the law into force in mid-2020 and estimates that the tax will generate around CZK2.1 billion ($90 million) in additional revenues in 2020 and CZK5 billion ($215 million) every year after that.
Who Takes The Hit
This digital tax affects companies with a global annual turnover of more than €750 million and sales within Czech Republic over €1.9 million. Alena Schillerova, the Czech Finance Minister, is mirroring the French approach to the tax, saying it will apply until global tax measures are agreed upon at the OECD level. According to KPMG, the French proposal is a 3% tax on the revenues of companies with more than €750 million in worldwide revenue. This includes around 30 companies, the vast majority being American companies like Facebook and Google's parent company Alphabet Inc.
National Or Global?
The Czech Digital Tax is seen as discriminatory by some, whilst others feel it is just an issue of the Czech government wanting to get its fair share of taxes from companies doing business in the middle-European country. On one hand, countries should be able to tax companies on earnings within their borders. However, is a national tax system simply an antiquated, old-fashioned approach to dealing with an economy that stretches the globe? At any rate, the American companies and the U.S. government will not be amused, and the tax could damage the Czech-American relationship.
That being said, Czech Republic were forced to do it themselves by the Ireland, Sweden, Denmark and German alliance, which blocked the digital tax in 2018.