The European Commission has set out its plans for ‘a fair and efficient tax system in the EU for the digital single market’ in a communication to the EU Parliament and the Council.
The European Commission has set out its plans for ‘a fair and efficient tax system in the EU for the digital single market’ in a communication to the EU Parliament and the Council. The Commission supports the approach discussed at the recent ECOFIN meeting in Estonia, based around a fundamental reform of international tax rules to establish a better link between how value is created and where it is taxed, to ensure internet-based companies are taxed in a ‘fair and growth-friendly way’. The two main policy challenges the Commission highlights are:
where to tax (nexus) – establishing and protecting taxing rights in countries where businesses can provide services digitally with little or no physical presence, despite having a commercial presence; and
what to tax (value creation) – attributing profit in new digitalised business models driven by intangible assets, data and knowledge.
While the Commission’s preferred long-term strategy is to work through the OECD and, at EU level, introduce the CCCTB and the concept of ‘virtual’ permanent establishments, it is also considering short-term fixes, including:
‘equalisation tax’ on turnover, applied to ‘untaxed or insufficiently taxed income generated from all internet-based business activities’;
withholding tax on certain payments made to non-resident providers of goods and services ordered online; and
an EU-wide advertising tax.
The Commission is looking to EU member states to develop a coordinated position to influence the work at global level, in time for the OECD’s interim report to the G20 on the taxation of the digital economy, due in Spring 2018. The OECD has just published a consultation of its own on these issues, running until 13 October, which will inform its report to the G20.
Catherine Robins, tax partner at Pinsent Masons, commented that the EU appears to be ‘trying to put pressure on the OECD to be more radical’ in its approach, noting that the OECD’s original BEPS Action 1 report did not recommend specific measures targeted at the digital economy.
On permanent establishments, Robins said: ‘redefining what constitutes a PE to include the concept of a virtual PE would be a very significant change. This would have ramifications for very many businesses trading across borders and not just the US tech giants’.
The EU ‘should set a high “de minimis” turnover limit for activities in each state – if they fail to do this, compliance burdens and cross-border tax disputes will increase significantly’, Robins added.
Rita de la Feria, professor of tax law at the University of Leeds, commented: ‘the Commission’s move to single out digital supplies is unworkable and, at the very least, has the potential to be highly distortive, because the Commission has accepted that the digital economy is becoming an economy in and of itself’.
The European Commission has set out its plans for ‘a fair and efficient tax system in the EU for the digital single market’ in a communication to the EU Parliament and the Council.
The European Commission has set out its plans for ‘a fair and efficient tax system in the EU for the digital single market’ in a communication to the EU Parliament and the Council. The Commission supports the approach discussed at the recent ECOFIN meeting in Estonia, based around a fundamental reform of international tax rules to establish a better link between how value is created and where it is taxed, to ensure internet-based companies are taxed in a ‘fair and growth-friendly way’. The two main policy challenges the Commission highlights are:
where to tax (nexus) – establishing and protecting taxing rights in countries where businesses can provide services digitally with little or no physical presence, despite having a commercial presence; and
what to tax (value creation) – attributing profit in new digitalised business models driven by intangible assets, data and knowledge.
While the Commission’s preferred long-term strategy is to work through the OECD and, at EU level, introduce the CCCTB and the concept of ‘virtual’ permanent establishments, it is also considering short-term fixes, including:
‘equalisation tax’ on turnover, applied to ‘untaxed or insufficiently taxed income generated from all internet-based business activities’;
withholding tax on certain payments made to non-resident providers of goods and services ordered online; and
an EU-wide advertising tax.
The Commission is looking to EU member states to develop a coordinated position to influence the work at global level, in time for the OECD’s interim report to the G20 on the taxation of the digital economy, due in Spring 2018. The OECD has just published a consultation of its own on these issues, running until 13 October, which will inform its report to the G20.
Catherine Robins, tax partner at Pinsent Masons, commented that the EU appears to be ‘trying to put pressure on the OECD to be more radical’ in its approach, noting that the OECD’s original BEPS Action 1 report did not recommend specific measures targeted at the digital economy.
On permanent establishments, Robins said: ‘redefining what constitutes a PE to include the concept of a virtual PE would be a very significant change. This would have ramifications for very many businesses trading across borders and not just the US tech giants’.
The EU ‘should set a high “de minimis” turnover limit for activities in each state – if they fail to do this, compliance burdens and cross-border tax disputes will increase significantly’, Robins added.
Rita de la Feria, professor of tax law at the University of Leeds, commented: ‘the Commission’s move to single out digital supplies is unworkable and, at the very least, has the potential to be highly distortive, because the Commission has accepted that the digital economy is becoming an economy in and of itself’.
