13. 10. 2017
13. 10.
2017
EU finance ministers discuss new digital economy rules
An informal meeting of the EU’s finance ministers and central bank governors took place in Tallinn in September and addressed, among other things, taxation issues in the context of the digital economy. The ministers looked into new approaches to the taxation of income of businesses operating in the digital economy sector. They also focused on improving existing international taxation principles. The aim of the meeting was to respond to new business models, the growing internationalisation of business activities and the digitalisation of economy.
The European Commission outlined the issues that governments face regarding the taxation of the digital economy. The current rules of international taxation require a business’ physical presence in another state. In today’s globalised and digitalised world, where goods and services can be delivered with minimal physical presence in another state, it is very hard to apply these rules. Businesses may thus avoid taxation both in the country of their residence and in the country of the source. The Commission thus wants to focus on the nexus, i.e. on determining which state has taxing rights over services that are provided digitally (although a commercial presence is only virtual), and on value creation, i.e. on allocating profits to such a virtual presence.
The finance ministers agreed on a two-phase approach. For the short term, the following three options were proposed:
- an equalisation tax on turnover; this would take the form of a tax on any untaxed or insufficiently taxed income from digital business activities, either creditable against a company’s corporate income tax liability in the country of residence or introduced as a separate tax in the country of source;
- a withholding tax on digital transactions, levied on a gross value of certain payments to non-resident providers of goods and services online;
- a levy on revenues generated from the provision of digital services or advertising activity, applicable on all transactions carried out remotely with local customers.
At the Tallinn meeting, Austria, Bulgaria, France, Germany, Greece, Italy, Portugal, Romania, Slovenia, Spain, Belgium and the Netherlands supported the above solutions.
For the long-term, however, the Commission recommends updating and revising the existing international tax rules. This involves primarily amending the definition of a permanent establishment to allow for the attribution of profits from digitalised services and goods; developing alternative approaches to traditional transfer pricing methods together with specific anti-abuse rules; and amending the CCCTB (Common Consolidated Corporate Tax Base) proposal to capture digital activities.
The participants also voiced the opinion that passing the proposed improvements to the existing international tax rules promptly would leave no need to implement the above temporary short-term measures.
One week after the informal ECOFIN meeting, Tallinn hosted a digital summit where the Commission submitted its assessment of each of the above solutions in terms of double tax treaties, state aid rules, fundamental freedoms and international treaties. The aim was to achieve consensus on the best way forward during the Council of the EU meeting in December, followed by a legislative proposal from the Commission by spring 2018.
It is to be expected that these initiatives will be further coordinated within the OECD’s BEPS Action 1 framework – Addressing the Tax Challenges of the Digital Economy. The OECD, however, plans to present its interim report on the taxation of the digital economy only at the G20 Finance Ministers’ session in April 2018, while its final report containing policy options and recommendations is expected in 2020.
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