On Tuesday 6 November, the European finance ministers will continue their discussions on the Commission's proposal for a 3% tax on the gross earnings of the activities of digital platforms ('digital services tax' or DST).
A note by the Austrian Presidency of the Council of the EU dated 29 October, of which EUROPE has had sight, takes stock of the situation. Following five technical meetings on the text held between July and October 2018, the Presidency considers that the “technical work has been finalised in broad terms”.
The technical work is making good progress, then, whilst at political level, certain member states, such as Ireland, remain staunchly opposed to the very principle of a European solution rather than awaiting consensus at international level.
The note, which was prepared ahead of the ministerial meeting, invites the ministers to reiterate their determination to reach an agreement ahead of the 'Ecofin' Council of December. As announced in EUROPE 12127, it also invites them to take position on two critical issues: the scope of application of the tax and the 'sunset clause'.
Data sales. Readers may recall that the question of whether or not to exclude the sales of data from the scope of application, which is supported by Germany, has already been put before the ministers (see EUROPE 12089).
On Friday, the French minister, Bruno Le Maire, tried again to convince his German counterpart that the DST would have no impact on the German car industry (see EUROPE 12127).
For its part, the Presidency considers that most of the delegations are now in favour of keeping data sales within the scope of application of the tax.
However, it intends to explore all solutions and to ask the member states whether, if it is excluded, technical solutions should be set out to avoid the circumnavigation of the taxation of online advertising or whether a new definition of data sales should be put together as a possible alternative.
Sunset clause. The ministers will also be invited to discuss the French proposal for a 'sunset clause' (see EUROPE 12092), clarifying that an international solution at OECD level will ultimately replace the European solution.
To do this, the Presidency has tabled two options. The first consists of a proposal for a set automatic expiry date, together with a political statement by the Council undertaking to call upon the Commission to repeal the directive before this date in the event that an overall solution is reached within an OECD framework in the meantime.
The second option is a revision clause, providing that at least 18 months before a certain date, the Commission will submit a report to the Council evaluating progress made at OECD level on the matter and present the Council with a proposal to modify the directive.
Collecting the tax. Among the progress made on the text there is an agreement in principle between the member states for the DST to be collected without the 'one-stop shop' proposed by the European Commission.
“The interim nature of DST requires that the tax should be collected without taking too much time to set up new and costly IT tools that might need to be abolished after DST expires”, the Presidency explains in its note.
A compromise version dated 22 October, of which EUROPE has had sight, abandons the principal of member State of identification as a single point of contact for the taxpayer.
The text does, however, reintroduce periods that are on average two or three times longer than those proposed by the Commission across the length of the process (notification, identification, declaration submission and payment). According to the text, the member state in which the DST is paid would have 30 working days – compared to 20 days in a previous compromise version and ten days proposed by the Commission – to allocate the taxpayer an individual identification number and notify it of this number electronically.
The member states also agreed that taxpayers with no activity or permanent establishment in the EU should appoint a tax representative to fulfil its obligations stemming from the DST. The precise content of these provisions is still being drafted at expert level.
It is worth noting that the compromise also proposes the use of the 'rounding' method to calculate the DST.
Administrative cooperation. The Council also seems to be moving towards an automatic exchange of information. “Since the tax administrations of all member states rely in principal on the same data, an automatic exchange of information is imperative”, the Presidency explains.
According to the text, the competent authority of each member state would then have to communicate by automatic exchange and within a period of 20 days to the competent authority of any other member state in which the operator is subject to the DST of any change in the declared revenue or any tax audit scheduled to be carried out regarding the taxpayer.
European bosses of digital giants speak up
On Tuesday 30 October, the heads of 16 European digital companies, such as Spotify and Booking.com, raised their concerns with the European finance ministers in a joint letter.
They also consider that the tax may cause material damage to European growth and innovation throughout Europe and that it will have a disproportionate effect on European businesses.
“Our proposal is nationality and company neutral”, a Commission spokesperson responded on the same day.
“Our goal is to ensure a level playing field for all businesses, whether they are EU based, non-EU-based, small or big”, he added. (Original version in French by Marion Fontana)