On Wednesday 21 March, the European Commissioner for Taxation, Pierre Moscovici, said that he was not sure that the EU had been understood by its American partner in its short-term approach to taxing digital (see EUROPE 11982, 11983).
“In any case, we had our say”, he added, whilst presenting his legislative proposals. The EU has sought to clarify its position to ensure that the tax is not seen as an anti-American tax or a tit-for-tat response to the customs barriers announced by the Trump administration on steel and aluminium (see EUROPE 11984).
When asked about the fact that as designed, the short-term tax - 3% on the gross income of certain digital activities - would not cover the main activities of Amazon, a company that has already hit the headlines over its tax arrangements, the Commissioner stressed that the EU aimed to tax activities and not companies.
“The company to which you refer will be covered for some of its activities. It is a general approach, we have not targeted anybody in particular and are not looking to spare anybody”, he explained. “If we had done a GAFA (Google, Amazon, Facebook and Apple) tax, the criteria would have been hard to define and entirely arbitrary”, he added.
The commercial models of other giants, such as Netflix, which provides video content on payable subscription, will also not be covered by the tax. “Today, in the framework of corporate tax, there are no elements to find out the revenue of this type of company”, a European source explained, adding that the Commission had tried to stick as closely as possible to the OECD analysis. The idea is to target “value created by the user”, another source explained.
The Commission is not seeking a mandate. Moreover, its communication lays particular emphasis on its long-term measure, for which it has never hidden its preference. The aim will be to introduce the concept of permanent virtual establishment into national laws. However, this will cover only the EU and it will then be necessary to re-negotiate bilateral tax agreements. This, furthermore, is one reason why the Commission’s interim solution proposes to tax gross income rather than profits, as these fall within the scope of bilateral tax agreements.
For its long-term solution, therefore, it has published a recommendation for the member states to amend their tax agreements, but has not at this stage asked for a mandate to negotiate on their behalf, although this is something it had envisaged in a previous version of the text. “The aim is to make progress on the content. Once there is more of a consensus and greater convergence, the Commission will be ready to receive an invitation to carry out exploratory discussions with the international partners”, one of our sources explained. “But this is not the direction decided upon by the College today”, the source added.
The NGO Oxfam also favours a long-term solution. CCIA, which represents Facebook and Google, amongst others, believes the short-term tax is “discriminatory” and ignores the global consensus that the digital economy should not be singled out. It flagged up the risk for the European Digital economy and international trade relations. (Original version in French by Élodie Lamer)