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Czech Government Backs 7% Digital Services Tax on Tech Giants

Nov. 18, 2019, 4:39 PM

The Czech government approved a proposal to impose a 7% digital services tax on large tech companies.

The proposal, which will be sent to the Parliament for consideration, would apply to companies with global income exceeding 750 million euros ($830 million) and domestic income over 100 million Czech koruna ($4.33 million).

With the parliamentary adoption process typically lasting two to three months, the tax could apply to companies for part of 2020.

The bill is meant to act as a stopgap measure until an international solution to taxation of global Internet giants can be found, a government report introducing the tax said.

The OECD is trying to get more than 130 countries to address concerns that tech giants, in particular, aren’t paying enough tax or not paying it in some countries where they have a large user base.

A joint and coordinated action in a broad international context would be “the most effective solution” to the challenges of the new digital economy, according to the Czech report. However, “finding consensus on common action by states within the European Union and Organization for Economic Cooperation and Development (OECD) is an extremely difficult process,” it said.

The tax is expected to net between 2.4 billion and 6.6 billion koruna annually for the state budget, according to the report.

The OECD released a plan in October for reallocating more of multinational companies’ profits to the market countries where they have users or consumers. The proposal is the first of two parts in the OECD’s plan to overhaul how multinationals are taxed.

To contact the reporter on this story: Jan Stojaspal in Prague at correspondents@bloomberglaw.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; Vandana Mathur at vmathur@bloombergtax.com