On March 21, 2018 the European Commission presented two legislative proposals for new taxation rules applying to digital business activities. The first initiative aims to reform corporate tax rules so that profits are registered and taxed where businesses have significant interaction with users through digital channels. This forms the Commission's preferred long-term solution and is laid down in a proposal for a COUNCIL DIRECTIVE laying down rules relating to the corporate taxation of a significant digital presence. According to the European Commission the second proposal responds to calls from several Member States for an interim tax which covers the main digital activities that currently escape tax altogether in the EU. This second proposal is laid down in a proposal for a COUNCIL DIRECTIVE on the common system of a digital services tax on revenues resulting from the provision of certain digital services.
Proposal 1: A reform of the EU's corporate tax rules for digital activities
This proposal would enable Member States to tax profits that are generated in their territory, even if a company does not have a physical presence there. The new rules would ensure that online businesses contribute to public finances at the same level as traditional 'brick-and-mortar' companies.
A digital platform will be deemed to have a taxable 'digital presence' or a virtual permanent establishment in a Member State if it fulfils one of the following criteria (These criteria can be found in Article 4, Paragraph 3 of the proposed Council Directive):
· It exceeds a threshold of €7 million in annual revenues in a Member State
· It has more than 100,000 users in a Member State in a taxable year
· Over 3,000 business contracts for digital services are created between the company and business users in a taxable year.
The new rules will also change how profits are allocated to Member States in a way which better reflects how companies can create value online: for example, depending on where the user is based at the time of consumption.
Click here to be forwarded to the Commission’s proposal for a COUNCIL DIRECTIVE laying down rules relating to the corporate taxation of a significant digital presence.
Other documents released with respect to this proposal are:
Proposal 2: An interim tax on certain revenue from digital activities
Unlike the common EU reform of the underlying tax rules, this indirect tax would apply to revenues created from certain digital activities which escape the current tax framework entirely. The European Commission proposes to levy a tax of 3% over the gross revenues (Article 8 of the Commission’s proposal for a Council Directive). This system will apply only as an interim measure, until the comprehensive reform has been implemented and has inbuilt mechanisms to alleviate the possibility of double taxation.
The tax will apply to revenues created from activities where users play a major role in value creation and which are the hardest to capture with current tax rules, such as a.o. those revenues:
· created from selling online advertising space
· created from digital intermediary activities which allow users to interact with other users and which can facilitate the sale of goods and services between them
· created from the sale of data generated from user-provided information.
Tax revenues would be collected by the Member States where the users are located, and will only apply to companies with total annual worldwide revenues of €750 million and EU revenues of €50 million (See Article 4 of the Commission’s proposal for a Council Directive).
Click here to be forwarded to the Commission’s proposal for a COUNCIL DIRECTIVE on the common system of a digital services tax on revenues resulting from the provision of certain digital services.
On March 21, 2018 the European Commission furthermore released the following documents:
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