You Think Google Search Is Free? Austria Seeks to Tax It Anyway

(Bloomberg) -- Austria is seeking ways to make digital services like Alphabet Inc.'s Google or Facebook Inc. pay taxes for transactions with the nation's internet users, trying to plug gaps in a tax system still designed for brick-and-mortar business.

The most ambitious part of the plan targets the business models of Twitter Inc., Google or Facebook: The tacit pact under which searching, liking, posting and tweeting remains free as long as users let the companies feed usage data into algorithms that help tailor advertising that can be aimed at the most likely buyers.

That arrangement is a form of bartering, and a value-added tax could be imposed on such transactions just as the levies are extended in other parts of the economy, said Andreas Schieder, the parliamentary head of Austrian Chancellor Christian Kern's Social Democrats, which govern in a coalition with the conservative People's Party.

“The business transaction that's going on here is that users are paying with their personal data,” Schieder told journalists in Vienna. “The business model of those internet companies is based on massive revenues that are generated with the help of those data.”

Amending Code

Raising more taxes from digital businesses is part of a broader plan to amend the country's corporate tax code. The package also includes closing loopholes that allow “aggressive tax planning” and corporate tax avoidance, which cost the Alpine country as much as 1.5 billion euros ($1.6 billion) a year, about a fifth of its annual corporate tax revenue, Schieder said.

The Social Democrats' plan has two other elements targeted at internet companies: It would extend the Austrian tax on advertising revenue to digital formats, and it would tax purely digital services that are acquired by Austrian customers from companies with no physical presence in the country.

Schieder said the Organization for Economic Cooperation and Development has made proposals for calculating and implementing such taxes, especially in its Base Erosion and Profit Shifting project.

“We need a new approach to make sure that taxes are paid where revenue and profit is made,” Schieder said. “The OECD has made practical suggestions how to define digital establishments for tax purposes.”

The proposals will need the agreement of conservative Finance Minister Hans Joerg Schelling. The goal to raise tax revenue from digital companies and to tax international companies “more efficiently” is part of the government's policy update agreed in January.

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net.

To contact the editors responsible for this story: Patrick Henry at phenry8@bloomberg.net, Steve Geimann, Jonathan Tirone