World news
11 December 2018

Decision on digital services tax postponed

The Economic and Financial Affairs Council (ECOFIN) did not pass the draft directive on digital services tax at its meeting on 4 December 2018.

Václav Baňka
Lenka Fialková

A compromise text, put forward by the Austrian presidency, is based on the following principles:

The tax shall only apply to multinational groups with worldwide revenues exceeding EUR 750 million per year and total EU revenues from taxable digital services exceeding EUR 50 million per year, regardless of where the services are provided from.

  • Taxable revenues shall mean revenues from advertising on digital interfaces (e.g. websites or mobile applications), revenues from intermediation services on digital interfaces, and revenues from the sale of user data.
  • The tax rate shall be set at 3%.
  • Taxable revenues shall be attributed to individual member states based on the location (to be determined primarily by the user IP address) of the users who viewed the advertisement, used the intermediation service, or whose data were sold, regardless of whether they themselves financially contributed to generating the revenues.

The member states’ representatives also dealt with a joint declaration by France and Germany put forward just before the meeting was opened, when it was already clear that the Austrian proposal was not going to win the member states’ unanimous support. The declaration asked the European Commission and the Council to narrow the scope of the digital tax to revenues from advertisements, with a possibility having the member states voluntarily widen the taxation scope. The declaration also proposed that the directive should be adopted by the end of March 2019, with effect from 2021.

Both proposing countries urged the European Commission and the Council to work on legislative proposals that would result in a permanent and global solution to the taxation of the digital economy, in line with the conclusions at the OECD level. This solution is expected in 2020. If a consensus is reached on the OECD level, and if the EU subsequently adopts the relevant legislation, the Digital Services Tax Directive will then be repealed.

The discussion on the proposal was frank, with various levels of support for the proposal. Some states, however, expressed their preliminary disagreement (Ireland, Sweden, and Estonia). Alternatively, they would prefer waiting for a solution on the OECD level. The fate of the digital tax is thus uncertain.

 

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