On 21 March 2018, the European Commission announced that it is moving ahead with proposals to implement both a Directive on digital permanent establishment (“digital PE”) and an interim targeted turnover tax (the press release is available here). This announcement follows on from a proposal document, which was leaked in late February, discussed in our earlier publication here.

Certain details have been developed following on from the leaked proposal document. In respect of the Directive, the following thresholds will determine whether an entity will have a digital PE:

(a) revenues from digital services in a Member State exceeding €7 million (lowering the proposed threshold of €10 million in the leaked draft);

(b) more than 100,000 users in a Member State in a taxable year (removing the concept of an ‘active user’ used in the leaked draft); or

(c) more than 3,000 business contracts for digital services between the entity and business users in a taxable year (a new proposal).

In respect of the interim targeted turnover tax, the suggested scope has not changed from the leaked draft, although the proposal now separates businesses that sell online advertising space and businesses that sell user-data into two separate fields.

As noted in our previous article, measures to tax the digital economy have been expected for a while. However, it will be interesting to observe how the United States will respond to these measures, given the number of Silicon Valley “unicorns” which will be affected.