On 21 March, the European Commission will present its proposals, most likely in three planks, to ensure the appropriate taxation of the Internet giants. A preparatory document, of which EUROPE has obtained a copy, details its approach. Caution is a watchword: some figures are indicative (in brackets) and a number of points are still not stabilised.
What does the document say? First of all, it looks at the long-term vision. The Commission has never hidden its misgivings over a short-term solution. Experience has very much put it off short-term fixes: the current value-added tax system (VAT) was supposed to be temporary and has been in place for over 25 years.
Its long-term solution will be based on two texts: - a directive on permanent digital establishments and rules to allocate profits to be included in negotiations on the common consolidated corporate tax base (CCCTB); - a recommendation to the member states to review their bilateral treaties.
This directive, the Commission explains, may apply only in situations involving two member states or one member state and one third country, where there is no bilateral treaty on general taxation. For third countries with which a bilateral treaty exists - for example, the United States, the Commission explains - the Commission may be given a mandate to negotiate on behalf of the member states, as it has already done in different circumstances with Switzerland and Liechtenstein.
Companies will be included in the scope of application of the European legislation if revenue achieved by its digital services exceeds €10 million (figure in brackets), if the number of users exceeds a threshold to which no number has yet been put, or if the number of digital contracts exceeds a certain threshold. No threshold in turnover terms will be proposed in this directive (such as the threshold of €750 million used in the ‘anti-tax avoidance’ directive, for instance).
The definition of digital services may take inspiration from the texts governing VAT on electronic services.
The Commission explained that if no rules are laid down on how to allocate profits to the permanent digital establishment, the directive will probably be seen as incomplete and largely ineffectual.
To divide up these profits, certain criteria may therefore be taken into account, such as data collected from users in a member state, the number of users or user-generated content. The legal basis of the tax would be article 115 of the TFEU Treaty (chapter on ‘approximation of tax laws’).
A temporary solution. The temporary solution would be based on article 113 TFEU (tax chapter requiring unanimity at the Council). It would target gross revenue based on digital activities themselves based on the creation of wealth, through the exploitation of user data.
This would, for instance, include exploiting personal data by offering advertising spaces (Facebook, Google, Twitter, Instagram and the free version of Spotify).
The other commercial model in question would be making exchange platforms available to users (intermediary service, such as AirBnB and Uber).
The making available of digital content (Netflix or Spotify on subscription, for instance) would not be covered by the scope of application of the text. The Commission explains this approach in several ways. In particular, for certain services in this category, user involvement is low, whereas its proposal covers scenarios in which there is a gap between the taxation of profits and the creation of value in activities with high user involvement. However, the institution’s position is not entirely set in stone on this point.
In the case of the temporary solution, the companies covered would be those with a turnover of more than €750 million and with revenue made on their digital activities of between €10 and €20 million (figures subject to subsequent changes).
The taxation rate would be between 1% and 5%. The Commission justifies the low level by explaining that a turnover tax of 5% for a company with a profit margin representing 50% of its turnover corresponded to a tax on profits of 10%.
The tax would be levied where the user is based and would be deductible from corporate tax. (Original version in French by Elodie Lamer)