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Czech Republic agrees to lower “GAFA tax” on digital giants

A protester holding a sign reading "Not Ok Google"

Prague, Czech Republic – The Czech government coalition has found an agreement to introduce a 5% tax on digital giants like Google, Amazon, Facebook and Apple (GAFA), instead of the 7% taxation scheme envisioned at first.

The agreement was announced by Minister for Labour and Social Affairs Jana Maláčová (CSSD) to the Czech News Agency (CTK) earlier this week.

First approved last November by the Czech government, the so-called GAFA tax would only target large digital companies and businesses with a global turnover of more than €750 million, a domestic turnover of over 100 million Kc (around €4 million) in taxable services in the Czech Republic and more than 200,000 user accounts.

The move is meant to bring in several billions of Czech crowns in the state coffers every year, but more importantly to level the playing field with domestic actors, who supporters of the tax argue are currently disadvantaged compared to foreign, mostly U.S.-based, digital giants.

The Czech Republic’s original 7% GAFA tax would have been the most ambitious of the kind in Europe, as a handful of other EU countries moved to introduce similar temporary schemes until an agreement can be reached at the OECD level.

Although the move appears to be largely popular among voters, the government led by Prime Minister Andrej Babis (ANO) has faced growing pressure to soften the tax, both at home and abroad.

A number of economists and experts condemned the move, saying digital giants like Google, Facebook, Amazon or Apple would have no problem coming up with another tax optimization scheme to mitigate the impact of the Czech tax, and that other EU countries with loose taxation regulations like Ireland would eventually benefit from it.

The United States, for its part, argued the move was discriminatory and has repeatedly threatened the Czech Republic with retaliatory measures, prompting fears among business circles that the economic and financial downfall could be even more severe – especially as the country prepares for its worst recession in decades due to the Covid-19 pandemic.

Main photo credit: REUTERS/JEENAH MOON

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.