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EU Consultation On 'Fair' Digital Tax Rules To Close

by Ulrika Lomas,, Brussels

26 December 2017

The European Commission is to soon conclude a consultation on policy solutions to tackle problems associated with taxing the digital economy.

Stakeholders were asked to provide feedback to the consultation by January 3, 2018, with proposals to be presented early next year.

The EU's consultation is running concurrently with an OECD consultation on the same topic, with the EU having told the OECD that it must present new tax policy measures or it will take the lead in this area.

The aim of the EU's consultation is to help the Commission in defining an approach to the taxation of the digital economy. The Commission's goals include fairer and more effective taxation, supporting public revenue, and ensuring a level playing field across businesses. It also wants the new system to support EU growth and competitiveness through the Digital Single Market.

The consultation takes the form of a questionnaire. It explains that the Commission is "exploring possible options to solve some of the taxation problems that digitalization brings."

It states that the Commission "believes that a two-step approach might be needed: first a targeted, temporary solution followed by a comprehensive, long term one."

As regards the temporary solutions, the consultation explains that the following options have been identified:

  • A tax based on revenues generated from "digital activities";
  • A withholding tax based on payments to non-resident providers of goods/services ordered online;
  • A tax based on revenue from digital transactions concluded remotely with a non-resident entity that has a significant economic presence; and
  • A digital transaction tax that applies early in the value creation process.

The possible long-term solutions are as follows:

  • New permanent establishment and profit attribution rules introduced through a modified proposal for a common consolidated corporate tax base (CCCTB);
  • New EU rules for permanent establishment and profit attribution to capture digital activities of businesses in a stand-alone EU Directive;
  • The introduction of a destination-principle to corporate taxation, according to which the jurisdiction to tax is based on the location of the consumer;
  • A tax on a share of the world profit of digital companies, which could be attributed to each country on the basis of the percentage of revenue earned in that country; and
  • A system where the profits of a company are declared and taxed in the member state of establishment – as is currently the case – but with the applicable rate being the turnover-weighted average of the tax rates of the countries where the turnover is generated.

Respondents are asked to indicate how far they believe each of these options would help to solve the issues identified.

TAGS: tax | business | European Commission | value added tax (VAT) | law | transfer pricing | tax rates | withholding tax | European Union (EU) | services | Europe

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