The European Commission has launched a consultation on policy solutions to the problems associated with taxing the digital economy.
The aim of the consultation is to help the Commission in defining an approach to the taxation of the digital economy. The Commission's goals include fairer and more effective taxation, supporting public revenue, and ensuring a level playing field across businesses. It also wants the new system to support EU growth and competitiveness through the Digital Single Market.
Tax Commissioner Pierre Moscovici said: "Nobody can deny it: our tax framework does not fit anymore with the development of the digital economy or with new business models. Member states want to tax the huge profits generated by digital economic activity in their country. We need a solution at EU level, bringing robust solutions for businesses and investors in the single market."
The consultation takes the form of a questionnaire. It explains that the Commission is "exploring possible options to solve some of the taxation problems that digitalization brings."
It states that the Commission "believes that a two-step approach might be needed: first a targeted, temporary solution followed by a comprehensive, long term one."
As regards the temporary solutions, the consultation explains that the following options have been identified:
- A tax based on revenues generated from "digital activities";
- A withholding tax based on payments to non-resident providers of goods/services ordered online;
- A tax based on revenue from digital transactions concluded remotely with a non-resident entity that has a significant economic presence; and
- A digital transaction tax that applies early in the value creation process.
The possible long-term solutions are as follows:
- New permanent establishment and profit attribution rules introduced through a modified proposal for a common consolidated corporate tax base (CCCTB);
- New EU rules for permanent establishment and profit attribution to capture digital activities of businesses in a stand-alone EU Directive;
- The introduction of a destination-principle to corporate taxation, according to which the jurisdiction to tax is based on the location of the consumer;
- A tax on a share of the world profit of digital companies, which could be attributed to each country on the basis of the percentage of revenue earned in that country; and
- A system where the profits of a company are declared and taxed in the member state of establishment – as is currently the case – but with the applicable rate being the turnover-weighted average of the tax rates of the countries where the turnover is generated.
Respondents are asked to indicate how far they believe each of these options would help to solve the issues identified.
The consultation will close on January 3, 2018.
The Commission is currently working on new proposals on digital taxation, which it will present in early 2018. The contributions to the consultation and a report on the feedback received will be published in the first quarter of 2018.