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Czech Republic may soften planned ‘GAFA’ digital tax under U.S. pressure

Prague, Czech Republic – The Czech government may ease its planned GAFA digital tax to avoid retaliatory measures from the U.S., Bloomberg reported.

In an interview published last week, Czech Finance Minister Alena Schillerova (ANO) declared she had “asked the Prime Minister to schedule a debate at the coalition council about a potential change of the rate from the current 7% to 5%”, adding that the government coalition partners might also consider postponing the date when the digital tax is due to come into effect.

Approved by the government in November, the Czech Republic’s planned tax on digital giants of 7% would be the highest and most ambitious GAFA tax in Europe.

Under the proposed scheme, the 7% tax would apply to companies with a global revenue of more than €750 million and a domestic turnover of at least 100 million Kc (around €4 million).

After talks at the EU and OECD levels collapsed and countries failed to reach an agreement on how to fairly tax digital behemoths, most of them American, the Czech Republic followed the likes of France, which has spearheaded efforts to tax large internet companies accused of paying little to no taxes in countries where they operate compared to their local competitors, and started discussing its own domestic tax until a multilateral agreement is found.

Austria and Italy also plan to introduce their own tax on digital giants in the coming months.

But U.S. officials have long been threatening the Czech Republic with retaliation if the planned proposal was signed into law. Echoing previous comments made by Treasury Secretary Steve Mnuchin, U.S. Ambassador in Prague Stephen King recently claimed the tax was “discriminatory” and unfairly targeted U.S. companies, warning that Washington may respond with countermeasures and sparking fears of a trade war escalation among Czech business circles.

Headed by Kafkadesk's chief-editor Jules Eisenchteter, our Prague office gathers over half a dozen reporters, editors and contributors, as well as our social media team. It covers everything Czech and Slovak-related, and oversees operations from our other Central European desks in Krakow and Budapest.