EU puts forward tougher and ‘digital-focused’ tax rules

21 Mar 18

The European Union has proposed new rules to make companies pay their fair share of tax in the digital age.

The commission’s proposal includes an initiative to reform corporate tax rules so profits are registered and taxed based on turnover, including through digital channels. It also calls for an interim tax to cover the main digital activities that currently escape tax altogether within the bloc.

The proposed rules come shortly after the OECD announced in its interim report that more than 100 countries have pledged to come up with a plan to stop digital companies avoiding tax.

The EU said adoption of the rules would make the bloc a “global leader” in designing tax laws fit for the modern economy and the digital age.

Valdis Dombrovskis, vice president for the euro and social dialogue, at the EU, said: “Digitalisation brings countless benefits and opportunities.

“But it also requires adjustments to our traditional rules and systems. We would prefer rules agreed at the global level, including at the OECD. But the amount of profits currently going untaxed is unacceptable.

“We need to urgently bring our tax rules into the 21st century by putting in place a new comprehensive and future-proof solution.”

Under the proposed plans, companies with significant digital revenues in Europe will pay a 3% tax on their turnover on various online services in the bloc, bringing in an estimated €5bn.

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 €750m and EU revenues of €50m, the commission said.

The legislative proposals will be submitted to the European Council for adoption and to the European Parliament for consultation.

The commission also said the EU will continue to work with the G20 and OECD to come up with international solutions to digital taxation.

Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs said: “The digital economy is a major opportunity for Europe and Europe is a huge source of revenues for digital firms.

“But this win-win situation raises legal and fiscal concerns. Our pre-internet rules do not allow our member states to tax digital companies operating in Europe when they have little or no physical presence here.

“This represents an ever-bigger black hole for member states, because the tax base is being eroded. That's why we're bringing forward a new legal standard as well an interim tax for digital activities.”

Companies would be deemed to have a taxable “digital presence” if it either exceeds a threshold of €7m in annual revenues in a member state, has more than 100,000 users in an EU country in a taxable year, or has over 3,000 business contracts for digital services created between the company and business users in a taxable year.

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