My way or the highway will not lead to a longer-term solution, writes Deeksha Rathi (Slaughter and May).
There is a common recent development in the tax systems of the UK, France, Austria, Poland, Czech Republic, Italy, and Spain. All of these countries have announced some version of a digital services tax. The table below compares those versions briefly.
Country
Rate
Overview
UK
2%
Targets businesses that generate at least £500m of global revenue and over £25m of UK revenue from social media platforms, search engines and online marketplaces
France
3%
Targets businesses that make €750m of global revenue and €250m of domestic revenue from online marketplaces, digital advertising and transmission of personal data
Italy
3%
Targets businesses that would make €750m in global revenue and €5.5m in domestic revenue from online advertising, transmission of user data and provision of a digital interface allowing users to interact
Austria
5%
Tax on internet advertising revenue for all businesses with global revenues of at least €750m and domestic revenues of at least €10m. Additional measures relating to VAT on imports from non-EU countries and taxation of online sharing platforms are envisaged to complement the tax
Czech Republic
7%
Targets businesses with global revenue of €750m or more, and that meet a certain yet to be established domestic revenue threshold from targeted advertising on a digital interface, use of multilateral digital interfaces, and sale of data collected about users of digital services
Poland
3%
Taxation based on virtual permanent establishment or taxable digital presence in Poland established based on three thresholds - revenue, users, and digital contracts. The tax is expected to target revenue from online advertising, sale of data generated from user-provided information, and from other digital services
Spain
3%
To apply as an indirect tax to businesses with an annual worldwide revenue of €750m or more during the previous calendar year and domestic revenue of at least €3m from online advertising, intermediation, and transfer of user data
The overlap in what the tax will cover, and the differences in the rate of tax, and when it kicks in pose a risk of double taxation and increased administrative burden on global businesses. In view of that, it seems like the EU's proposal of a 3% indirect tax on businesses with annual worldwide revenues of €750m and EU revenues of €50m derived from the selling of advertising space, digital intermediary activities like online marketplaces, and sales of user collected data would have been a neater option. That plan was dropped on 12 March 2019 because of strong opposition from Ireland and the Nordic countries.
That said, in any case, none of these proposals address the fundamental issue: the rules for determining tax nexus and profit allocation have not matched pace with technological developments. The OECD is focusing on delivering a longer-term 'consensus-based' international solution in 2020 that goes to root of the problem. But given the moves from individual European countries, it is clear the patience required for reaching such a solution is running out. This is not in the interest of global commerce, and can stifle the development and uptake of a proposal of the kind the OECD is working on.
Deeksha Rathi, Slaughter and May (europeantax.blog)
My way or the highway will not lead to a longer-term solution, writes Deeksha Rathi (Slaughter and May).
There is a common recent development in the tax systems of the UK, France, Austria, Poland, Czech Republic, Italy, and Spain. All of these countries have announced some version of a digital services tax. The table below compares those versions briefly.
Country
Rate
Overview
UK
2%
Targets businesses that generate at least £500m of global revenue and over £25m of UK revenue from social media platforms, search engines and online marketplaces
France
3%
Targets businesses that make €750m of global revenue and €250m of domestic revenue from online marketplaces, digital advertising and transmission of personal data
Italy
3%
Targets businesses that would make €750m in global revenue and €5.5m in domestic revenue from online advertising, transmission of user data and provision of a digital interface allowing users to interact
Austria
5%
Tax on internet advertising revenue for all businesses with global revenues of at least €750m and domestic revenues of at least €10m. Additional measures relating to VAT on imports from non-EU countries and taxation of online sharing platforms are envisaged to complement the tax
Czech Republic
7%
Targets businesses with global revenue of €750m or more, and that meet a certain yet to be established domestic revenue threshold from targeted advertising on a digital interface, use of multilateral digital interfaces, and sale of data collected about users of digital services
Poland
3%
Taxation based on virtual permanent establishment or taxable digital presence in Poland established based on three thresholds - revenue, users, and digital contracts. The tax is expected to target revenue from online advertising, sale of data generated from user-provided information, and from other digital services
Spain
3%
To apply as an indirect tax to businesses with an annual worldwide revenue of €750m or more during the previous calendar year and domestic revenue of at least €3m from online advertising, intermediation, and transfer of user data
The overlap in what the tax will cover, and the differences in the rate of tax, and when it kicks in pose a risk of double taxation and increased administrative burden on global businesses. In view of that, it seems like the EU's proposal of a 3% indirect tax on businesses with annual worldwide revenues of €750m and EU revenues of €50m derived from the selling of advertising space, digital intermediary activities like online marketplaces, and sales of user collected data would have been a neater option. That plan was dropped on 12 March 2019 because of strong opposition from Ireland and the Nordic countries.
That said, in any case, none of these proposals address the fundamental issue: the rules for determining tax nexus and profit allocation have not matched pace with technological developments. The OECD is focusing on delivering a longer-term 'consensus-based' international solution in 2020 that goes to root of the problem. But given the moves from individual European countries, it is clear the patience required for reaching such a solution is running out. This is not in the interest of global commerce, and can stifle the development and uptake of a proposal of the kind the OECD is working on.
Deeksha Rathi, Slaughter and May (europeantax.blog)
