Merkel proposes new data tax

BERLIN - German chancellor Angela Merkel (CDU) has proposed introducing a new tax on data in the digital economy on Monday night.

Speaking at the Global Solutions Summit in Berlin, Merkel highlighted that intermediary physical goods were already assigned a financial value and taxed accordingly. She argued that digital data used by companies for commercial purposes needed to be "considered in our taxation system" as well.

The chancellor urged scientists to make concrete suggestions for a reform, including how to price data.

She warned that failure to address existing loopholes would create a deeply unfair world where some people delivered their data for free and others earned a profit from this resource.

The idea to offer online users some form of financial compensation for their data, which constitutes the key value-added for social media companies like Facebook, is not new. However, Merkel's comments marked the first time that a global leader has publicly taken up the cause.

"The pricing of data, especially that of consumers, is the central injustice issue of the future," the chancellor said. She emphasized that such data had become fundamental to the business model of many companies in the digital economy which generated income with targeted advertising.

According to Merkel, ongoing discussions in the European Union (EU) over how to tax large US companies like Google and Amazon only underscored the urgency of problems in the current regulatory regime governing e-Commerce. The situation raised the question of whether traditional corporation tax models were still appropriate, or whether policymakers should instead resort to revenue-taxing to ensure a level playing field between digital and non-digital companies.

Many online businesses pay considerably less tax in Europe than traditional industrial manufacturers or high street retailers. The digital companies hereby benefit from their non-locational character which allows them to channel European profits through low-tax jurisdictions such as Ireland and Luxembourg.

The EU Commission has already announced tentative plans to tax the revenue of large digital companies with at least 750 million euros ($866 million) in annual global revenue and online sales worth 50 million euros in Europe at a 3 percent rate. The taxes would be levied in the countries where users are physically based and hence where the individual sales are actually achieved.

But the plans also require unanimous consent from EU members which remains elusive on the issue. While Germany and France are seen as the major driving forces behind the changes, low-tax countries like Ireland, Luxembourg and Malta have warned that the reforms could open a new front in a trade war between Brussels and Washington.