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Moscovici: We Need To Act Fast On Digital Taxation

by Ulrika Lomas, Tax-News.com, Brussels

21 February 2018


EU Tax Commissioner Pierre Moscovici has said that the bloc must "act fast to secure a common approach to digital taxation" and that member states must decide on how to achieve "a fundamental overhaul of our corporate tax systems."

Moscovici was the keynote speaker at a "Masters of Digital 2018" event. He said that corporate tax frameworks, "conceived in a pre-internet age," have failed to keep up with the pace of change, as they "rely heavily on the concept of physical presence and are underpinned by the simple principle that profits should be taxed where value is created."

According to Moscovici, "in a digitalized world, it can be difficult to pin down the value that has been created, how it has been created, and where it should be taxed."

The Commissioner said that this poses a problem for tax fairness, with domestic digitalized business models subject to an effective tax rate of nine percent, as opposed to the 21 percent faced by traditional business models. He added that this in turn impacts member states' tax bases.

These difficulties call for "a fundamental overhaul of our corporate tax systems – and Europe is about to decide how to do just that," he said.

Moscovici said that member states will either "move forward in an orderly fashion or… in a disorderly fashion." He said that member states are "increasingly frustrated at their inability to tax the high volumes of digital activity within their borders," and noted that some have taken, or are planning to take, unilateral action in this area.

Moscovici warned that "a combination of fragmented, uncoordinated national 'patches' and solutions would negatively affect the single market, raise compliance costs and ultimately undermine competitiveness."

He urged member states to get involved in the discussion on the action that the EU should take. He said the bloc must "act fast to secure a common approach to digital taxation to avoid serious disruptions and ensure business certainty in the field of taxation."

Moscovici said that, ideally, progress should be achieved at an international level but stressed that "that is not a prerequisite." He explained that the Commission is working closely with the OECD on the issue but he feels that "international progress does not give cause for much optimism on either the pace or scope of digital tax reforms we can expect."

Next month, the Commission will present its own proposals for the taxation of the digital economy. "Our aim is to give impetus to the international debate and help push our global partners to act, while resolving the tensions in our single market," Moscovici said.

According to Moscovici, the Commission's proposals will address the problems of where to tax and what to tax. It will aim to find "a fair and balanced way to establish taxing rights" and a "fair and effective way to reflect new forms of value creation."

TAGS: compliance | tax | business | European Commission | value added tax (VAT) | corporation tax | tax thresholds | tax authority | internet | transfer pricing | tax rates | tax reform | European Union (EU) | Europe | BEPS

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