Global Tax Deal Is Not Enough

European Council of Shopping Places Column by Joost Koomen

Recent months have finally seen shops, bars, and restaurants gradually re-opening. The latest footfall and turnover numbers from across Europe, though not yet at 2019 levels, are positive and encouraging, providing some much-needed relief. However, the pandemic’s financial impact as well as the risks posed by new virus variants still loom on the horizon.

While we still need to digest and assess the full financial impact of the pandemic, Covid-19 has undeniably accelerated existing trends in the retail sphere. For years, online shopping had, of course, been on the rise, making retail business models increasingly omnichannel. But the pandemic has led to its definitive breakthrough, also reaching countries and communities where penetration had previously been more limited.

A growing concern has been the lack of a level-playing field between brick-and-mortar and pure online retail, in particular, with regard to taxation. Research by CNCC (Conseil National des Centres Commerciaux), the French National Council of Shopping Places and a member of ECSP in 2019, showed that France applied 90 different taxes on brick-and-mortal retail, while e-tailers, which represented about 10% of the total market at the time, paid virtually no taxes at all. That is a staggering differential that is even harder to justify in the current marketplace.

The taxation of digital companies has been high on the international political agenda for several years. However, agreement between countries has been hard to find at both the global and EU levels. In the meantime, several European countries have introduced digital levies. Fast-forward to 2021 and the pendulum may have changed for 130 countries, many of which are in need of revenue to cover the costs of Covid-19, as a new OECD tax deal was endorsed on July 1, 2021. The deal introduces a minimum global corporate income tax rate of at least 15%. It also enables the shifting of a part of taxing rights to the country in which a sale has taken place instead of the country of residence of the company (to combat the “offshoring” of revenues to tax havens).

This deal is a top priority for the EU, and a proposal to convert the OECD agreement to an EU digital tax is expected later this year. However, it would be a mistake to reduce the level playing field discussion to corporate taxation. Other taxes should be looked at, too. More importantly, in order to find fair solutions, EU policy-makers must also consider other aspects, such as environmental impact, operating conditions, social policy, as well as the potential impact on urban planning and mobility.

A review should not also serve as a binary choice between offline and online retail. Its more complex than that as many traditional retailers are shifting their operations online following the pandemic, to complement their existing stores. As retail becomes more diverse and omnichannel, boundaries between the two are blurring fast. The retail property sector is aware of that and has already begun adapting where it makes sense to do so. The increase of mixed-use projects is a case in point. Nevertheless, to safeguard the future of retail, consumer choice, and the shopping experience itself, the playing field needs to become more level with regard to who pays what tax, where, and when. Decision-makers have to become equally astute at adapting to the new commercial reality. To that end, our sector shares an equal responsibility in owning our own agenda. We need a clear and unified voice, accompanied by measured arguments and underpinned by strong data. ECSP and its members have already made a start.