On Wednesday 21 March, the European Commission will publish three separate texts on ensuring the adequate short- and long-term taxation of companies in the digital sector (see EUROPE 11982).
The first document covers the short term: a digital services tax (DST). This will be levied on the gross revenue of digital activities (for instance, advertising revenue). In the draft document, of which EUROPE has had sight, the tax base is described as follows: it is not a transaction-by-transaction tax. The taxable amount is net of VAT and other similar taxes. The rate will be 3% and the Commission anticipates annual revenue in the order of €5 billion.
The Commission is planning to set up a single window system. The tax will be paid in the country of identification of the company. For instance, a company that is liable for the future tax in two member states will be able to choose its country of identification (even if it is not a tax resident in that country). Taxpayers will pay all of the tax they owe for all member states in the country of identification.
It will be the responsibility of the countries of identification to pay the amounts owed to their European partners. The draft directive also provides for an exchange of information between European countries concerning tax statements and payments.
The ACCA, which represents the accountancy profession at international level, has already expressed concern at the way in which this short-term solution has been devised, as it fears that it will cause distortion within the EU and between it and the rest of the world.
Furthermore, Chas Roy-Chowdhury explains, the concerns are increased by the fact that over time, many “temporary or transitional” tax measures have become embedded into the economy. “Negotiating changes to that status quo is far more troublesome than it would have been to implement a better solution from scratch”, he added.
Bringing in the concept of significant digital presence
The second text to be presented by the Commission will be a directive aiming to establish rules on the taxation of a significant digital presence.
This proposed directive will provide solutions in the framework of the current tax system. It will apply when a company generates revenue on its digital services in a member state above a certain amount, which is not specified in the communication of which EUROPE has had sight. Other indicators will be used to define this presence: the number of online contracts taken out with users and a threshold number of users.
To define the principles of allocating profits, the directive will build on the existing transfer pricing rules. The principles will take account of activities carried out through a digital interface, for instance the transmission of users’ data, the content generated by users and the sale of advertising space to third parties.
The proposed common consolidated corporate tax base (CCCTB), on which the Parliament reached its position on Thursday (see EUROPE 11982), will not be reviewed at this stage. The Commission simply states that it “stands ready to work with member states and the Parliament to examine” how its concept of significant digital presence can be worked into the text.
Finally, its directive setting out rules on the taxation of a significant digital presence will not cover situations in which a European country has a bilateral tax agreement with a third country.
For this reason, the Commission will present a third text, which will take the form of a recommendation to the member states on how to review these bilateral agreements.
No consensus on this dossier at the OECD.
On Friday 16 March, the OECD published its interim report on the taxation of digital companies. The main preliminary conclusion is that there is no international consensus on either the need to change the international tax rules to bring them into the digital age, or on the need or usefulness of short-term measures, such as the DST to be presented by the Commission on Wednesday 21 March.
More than 110 countries of the world have agreed to work towards a common solution by 2020.
The French finance minister, Bruno Le Maire, and his German opposite number, Olaf Scholz, welcomed the OECD report. “Europe has a historic opportunity to show that it does not follow the major powers, but that it is capable of defending its own values”, said Le Maire, welcoming the fact that the Commission had been able to put forward a legislative proposal so quickly.
Scholz said that the “national level is not the right one to resolve the problem of taxing digital platforms”, but acknowledged that it would be difficult to reach an agreement at international level.
At the Commission on Friday, it was not being ruled out that the US could be tempted to bundle the ‘taxation of digital’ and ‘customs barriers on steel and aluminium’ dossiers together. (Original version in French by Élodie Lamer)