It’s no secret that governments are struggling with the question on how to tax digital companies. CCCTB s called a solution. The introduction of the principle of a virtual permanent establishment is commonly mentioned solution. On September 21, 2017 the European Commission adopted a Communication to the European Parliament and the Council titled: “A Fair and Efficient Tax System in the European Union for the Digital Single Market”.

In the Communication the European Commission sets out the challenges Member States currently face when it comes to acting on the issue of coming up with a way to fairly and growth-friendly tax digital companies. Furthermore the European Commission outlines possible solutions that according to the Commission have to be explored.

 

The aim of the European Commission is to ensure a coherent EU approach to taxing the digital economy that supports the Commission's key priorities of completing the Digital Single Market and ensuring the fair and effective taxation of all companies. The Communication paves the way for a legislative proposal on EU rules for the taxation of profits in the digital economy, as confirmed by President Juncker in the 2017 State of the Union. According to the European Commission those rules could be set out as early as spring 2018. The Communication should also feed into international work in this area, notably in the G20 and the OECD.

 

According to the Communication the two main policy challenges that need to be addressed can be summarised as follows:

·   Where to tax? (nexus) – how to establish and protect taxing rights in a country where businesses can provide services digitally with little or no physical presence despite having a commercial presence; and

·   What to tax? (value creation) – how to attribute profit in new digitalised business models driven by intangible assets, data and knowledge.

 

A comprehensive and modern approach to the taxation of the digital economy is needed to meet the goal of fairer and more efficient taxation, and to support EU growth and competitiveness through the Digital Single Market. This approach should be driven by the following objectives:

·   Fairness - Ensuring that corporate profits are taxed where the value is created

·   Competitiveness - Creating the right tax environment for the scaling-up of start-ups and businesses to flourish in our Single Market.

·   Integrity of the Single Market - Converging towards a common solution that avoids unilateral measures that would destabilise the functioning of the Single Market

·   Sustainability - Ensuring the corporation tax system is future-proofed and sustainable in the long-term.

 

In its Communication the European Commission states that it continues to believe that the CCCTB provides an EU framework for revised permanent establishment rules and for allocating the profit of large multinational groups using the formula apportionment approach based on assets, labour and sales that should better reflect where the value is created. There is scope within the current CCCTB proposal to examine further enhancements to ensure that it effectively captures digital activities. Discussions are already underway on this in the Council under the Estonian Presidency and in the European Parliament. The Commission stands ready to work with Member States in examining these options within the ongoing CCCTB negotiations, to find an ambitious and EU-law compatible approach for the Single Market.

 

The European Commission also states that arriving at a meaningful solution to capture and allocate the value created in the digital economy across countries can take time. However, the longer it takes to find a solution, the bigger the losses in tax revenues will be. Therefore the European Commission is of the opinion that alongside the work on a longer-term strategy, there are also more immediate, supplementary and short-term measures that should be considered to protect the direct and indirect tax bases of EU-Member States. In this respect the European Commission a.o. mentions:

·   The introduction of an equalisation tax on turnover of digitalised companies (A tax on all untaxed or insufficiently taxed income generated from all internet-based business activities, including business-tobusiness and business-to-consumer, creditable against the corporate income tax or as a separate tax)

·   The introduction of a withholding tax on digital transactions (A standalone gross-basis final withholding tax on certain payments made to non-resident providers of goods and services ordered online)

·   The levy on revenues generated from the provision of digital services or advertising activity (A separate levy could be applied to all transactions concluded remotely with in-country customers where a non-resident entity has a significant economic presence.)

 

All-in-all the European Commission comes to the following conclusion:

This Communication calls for a strong and ambitious EU position on taxing the digital economy, which should feed into ongoing international work on the issue. It also aims to provide a basis for further political discussions amongst Member States at the Tallinn Digital Summit of 29 September, so as to reach a common position in the international discussions.

 

The Commission will support the Estonian Presidency in its work on these issues with a view to stabilise by the end of the year Council conclusions setting out a coordinated EU approach. These conclusions would form the common basis that EU and its Member States would use to put forward proposals in the international discussions.

 

The EU expects meaningful progress in the global agenda and should push for this to be reflected in the OECD report to the G20 Finance Ministers at their meeting in April 2018. The Commission will contribute to a successful conclusion of the on-going global discussions at the G20.

 

In the absence of adequate global progress, EU solutions should be advanced within the Single Market and the Commission stands ready to present the appropriate legislative proposals. The Commission will continue to analyse the policy options and consult with relevant stakeholders and industry representatives on this important and pressing issue ahead of a possible proposal by spring 2018.

 

Next to the Communication the European Commission also published a Questions and Answers on the Communication on a Fair and Efficient Tax System in the EU for the Digital Single Market on September 21, 2017. Furthermore a website of the DG TAXUD titled: “Fair Taxation of the Digital Economy” went live on September 21, 2017.

 

Click here to be forwarded to the Communication to the European Parliament and the Council as adopted by the European Council on September 21, 2017.

 

Click here to be forwarded to the Questions and Answers on the Communication on a Fair and Efficient Tax System in the EU for the Digital Single Market as released by the OECD on September 21, 2017.

 

Click here to be forwarded to the DG TAXUD webpage: “Fair Taxation of the Digital Economy”.

 

 

Copyright – internationaltaxplaza.info

 

 

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