It will take more than quick fixes to resolve the matter of the taxation of the digital economy, is the gist of the conclusions of the Estonian Presidency of the Council of the EU, in a document prepared ahead of the informal meeting of European finance ministers, to be held in Tallinn on 15 and 16 September, and of which EUROPE has had sight.
“Connecting the taxation of the digital economy with source of income [for instance, a tax on online advertising, digital services for non-residents] through quick fixes may not be a reliable solution in the long run. The most likely outcome would be under-, over-, or non-taxation”, the Presidency writes.
It explains this comment by its expectation that companies in the digital sector will lose no time in changing their business models to avoid taxation, which would mean that the tax base would disappear, whilst the digital presence and value created in a given country would remain unchanged.
The Presidency quotes one example: levying a tax on advertising, when video hosting site YouTube has just brought in a paid version of its services that allows users to avoid the ads.
“The most promising way forward would be to amend the current international corporate tax rules to fill in the gap that enables the profits earned from businesses in the digitalised economy to escape their taxation”.
This would entail “modifying the concept of permanent establishment and enhancing the rules for attribution of profits to the newly modified permanent establishment reflecting the value created by it”. Hence, even without a physical presence, a company would be deemed to have a (virtual) taxable presence and would therefore be required to meet its tax obligations in a given jurisdiction.
The Estonian Presidency takes the view that the bulk of the international tax rules would remain unchanged and that it should therefore not be any harder to agree on a solution than on a quick fix.
The French finance minister, Bruno Lemaire, is expected to present his peers with a solution based on a turnover tax. The question that remains unanswered will, of course, be how the revenue gets divided up.
The taxation of digital is one of the European Commission's priorities for the coming months. The Presidency will therefore be asking the ministers whether a common position will be possible by December, in order to feed into the OECD reflection. The Commissioner for Taxation, Pierre Moscovici, has argued that the EU should go faster and further than the G20. (Original version in French by Élodie Lamer)