On 21 September 2017 the Commission published a Communication on a Fair and Efficient Tax System in the European Union for the Digital Single Market. The Communication feeds into the ongoing international policy efforts to address taxation challenges brought by the digital economy and the increasing role of intangibles in digital companies’ business models. The Commission’s aim is to coordinate the European approach in international discussions on reforming international corporate tax rules.
The Communication notes that any future reform will need to address the key questions of where and what to tax. With respect to the general international corporate tax framework, this is likely to include changes to the definition of permanent establishment, as well as transfer pricing and profit attribution rules applicable to digital technologies. The Commission expects a high level of ambition from the Interim Report being prepared by the Organization for Economic Cooperation and Development (“OECD”) for G20 meeting in spring 2018.
The Communication makes clear that if international efforts fail, the Commission will push for a solution at the EU level. More details will be known in December, when the EU Member States are expected to agree on an EU-wide approach. Concrete legislative measures might be put forward by the Commission already in early 2018.
To inform its work, on 26 October the Commission launched a public consultationon a number of different options to tax digital giants.
To protect the Member States’ tax bases until a lasting solution can be found, the Commission proposes a number of targeted temporary quick fixes.The possibilites include a tax on revenues from digital activities/services; a withholding tax on digital transactions; or a digital transaction tax that would be applied early in the value creation process.
In the long run, the Commission is considering the introduction of new profit atttribution and digital permanent establishment rules, either by modifying the existing proposal for a Common Consolidated Corporate Tax Base (“CCCTB”), or by preparing a standalone Directive. A new coporate tax, based on the consumer destination principle is also mentioned among the options. Another possibility would be to introduce a unitary tax on a share of the company’s world profit, which would be attributed to countries on the basis of revenue created in the respective jurisdictions. Lastly, a system with the residence tax base but a destination tax rate is also considered.