The legal address and head office of the Google internet platform is in California, the European representation in Ireland and a subsidiary in the Netherlands. The head office responsible for the activities of Facebook in Europe is also located in Dublin, Ireland. Advertising turnover of Facebook increased 59 percent in the third quarter of this year compared with 2015; that of Google 18 percent.
A foreign company’s revenue is presently taxed in Estonia only in case and to the extent of the company’s business activities taking place in Estonia. According to the Tax and Customs Board, the accessibility of a website in Estonia does not serve as ground for tax liability.
“Regarding income tax these companies would become liable to taxation in Estonia only in case of permanent operating base and as far as we know these enterprises do not have it,” explained Mailin Aasmäe, spokesperson for the Tax and Customs Board.
According to the Board, firms selling goods or providing services in Estonia have to consider the Estonian tax laws. “Taxation is also influenced by international agreements against double taxation, on tax evasion and other foreign agreements,” the Board pointed out.
In case of an agreement against double taxation, a foreign company’s income from services provided in Estonia is taxed only in case and to the extent of a foreign subject providing services in Estonia continuously, via a definite location of business or representatives empowered to conclude agreements.
Since the laws currently in force in Estonia do not permit the exacting of income tax from these huge corporations, their earnings move out of the country tax-free and in ever-increasing amounts.
A study carried out by Kantar Emor shows that the larger service providers moved 5.1 million euros worth of advertising income put of Estonia in 2015, a larger sum that the total income of Postimees from online advertisements in 2015.
According to Allan Sombri, head of online advertising of Postimees, the Kantar Emor figures are too conservative. In Sombri’s estimation, the actual turnover moving out of Estonia via the advertisements mediators is even higher and amounts to 8-10 million euros.
It should be pointed out that the estimated online advertising turnover of local media channels for 2016 is 12.8 million euros. According to Kantar Emor, the figures show that money is flowing out of Estonia’s Internet ad market at a faster rate than the growth of turnover of local media channels.
Hanno Kindel, the Estonian head of the media agency chain Omnicon Media Group, admits the problem and states that the volumes of Facebook, Google and Youtube are increasing at a shocking rate. “The volumes went up years ago, but the turnover increase curves of this year really give food for thought. A certain part of digital marketing could be carried out purely by using these giants, meaning that 100 percent of the money earned, even including taxes, would move out of Estonia,” Kindel said.