It’s time to reach a global agreement on digital taxation

Etsy is proud to be a springboard to entrepreneurship for millions around the world. Empowering our sellers extends beyond the obvious priorities like providing them with the tools to start and manage their own businesses, access to tens of millions of global customers, and the educational resources to help them along the way. We also ensure that our company and our sellers have the right information, tools, and resources to comply with complex, ever-changing international tax rules.

However, the current international tax system has not evolved or kept pace with the increasingly global nature of how digital companies operate. Under the current system, companies generally pay taxes in the jurisdictions where they have operations. But this model is beginning to break down, especially for digital companies, which may earn lots of revenue from customers in a country without hiring a single person there.

That’s why the Organisation for Economic Co-operation and Development (OECD) has been negotiating a new multinational agreement on international tax, which would set out rules to clearly, consistently, and fairly divide taxable profits among countries. We strongly support this effort, and have shared our endorsement and ideas to improve the proposals over the years.

Urgent Need for an OECD-Negotiated Agreement

Unfortunately, the OECD did not meet its 2020 deadline to reach an agreement. But we desperately need a solution, because without agreement from the international community, countries across the globe have begun passing Digital Services Taxes (DSTs). These are often billed as taxes that only impact so-called digital giants, but they impact many more companies, including Etsy, and can have a negative downstream effect on small businesses and consumers, including Etsy sellers. It seems likely that if the OECD does not find a solution, many more countries will pass DSTs in the coming year or two.

That’s why we call on President Biden to quickly re-engage in the negotiations to advance a global solution, before the OECD’s new deadline of mid-2021.

We are very supportive of a global consensus on how to tax the digital economy even if our tax bill increases. A global consensus will allow us to operate more efficiently and will protect us and small businesses and consumers from the negative downstream impacts of unilateral DSTs.

Why Digital Services Taxes are Not the Way Forward

DSTs are fundamentally flawed. They tax revenues, not profits, meaning they don’t account for any expenses or investments a company makes in a jurisdiction. In our case, those investments, like in-market advertising, help local creatives connect with buyers, grow microbusinesses, and ultimately contribute to economic growth. Under DSTs, you can be operating at a loss (as many companies do), and owe more tax than you actually have in your bank account. Further, unilateral action by each country is creating a patchwork of rules that risks double taxation. That’s bad policy, and unsustainable over the long term.

Even worse, small businesses can end up footing the bill. Either DSTs get passed on to local businesses (as several large companies have to date), or they undermine investment in a local community (for example our ability to invest in local marketing). The bottom line is small businesses end up paying for DSTs either way.

Etsy’s Approach Going Forward & Call for Action

To date, Etsy has incurred the entire cost of these DSTs, in the hopes that an OECD agreement would eventually make them moot. We will continue to incur these costs in the near term to allow the Biden Administration time to re-engage with the process, in the hopes that the international community will find a way to come to an agreement before the new mid-2021 deadline.

However, if the international community fails to roll back unilateral DSTs by then, we may need to re-evaluate this approach. Ultimately, we would be forced to choose between absorbing this cost at the expense of making other investments that support our entire global community, or sharing DST costs with our sellers. Our sellers suffer in both of these scenarios, as do the national economies we’re helping rebuild together following the greatest health and economic crisis of our time.

Now more than ever, we need the international community to reach a consensus on digital taxation. We’re already very nearly there. Please join us in urging every OECD government to find a solution before time runs out.