Taxing the digital economy: the EU proposals introducing new tax concepts for the digital economy

22 March 2018

Rik van de Meerendonk

Yesterday, March 21, 2018, the EU Commission has released the proposed measures to ensure that all companies pay their share of tax within Europe. The measures are needed to align the existing corporate tax rules (which are outdated) with the evolution of the digital economy. Reference is also made to our previous item on taxing the digital economy, dated March 16, 2018. 

The EU Commission proposes two distinct legislative proposals (the Proposals) in order to achieve, by means of a coordinated coherent EU approach, that large digital enterprises pay their fair share of tax to the relevant EU Member States (i.e. where the user is located):

  • Firstly, a reform of the corporate tax rules is proposed in order to make sure that profits are registered (and taxes paid) in the Member State where a company is considered to have a significant digital presence (the Comprehensive Solution); 
  • Secondly, an interim tax for the period until the Long Term Solution has been implemented, i.e. this to target activities that are currently not effectively subject to tax (i.e. to avoid unilateral measures to tax digital activities) (the Interim Solution).

The Proposals support the Digital Single Market (preventing unilateral measures) and should provide inspiration and momentum for the ongoing international discussions as coordinated by the G20 and OECD. As earlier announced the EU Commission remains of the opinion that the ideal solution to taxing the digital economy would be a solution adopted at global level. However, both progress and reaching such global agreement is considered to be challenging and may take time. 

While the Interim Solution is expected to have impact on a limited amount of large digital enterprises, the Comprehensive Solution is expected to have impact on a broader scope of companies. 

The EU Commission aims at December 31, 2019 for the approval process and implementation in domestic laws of the Member States as a result of which DST should be in effect for tax periods starting on or after January 1, 2020.

Please click here to read further detailed information on the Comprehensive Solution and please click here to read further detailed information on the Interim Solution. 

Both the Interim Solution and Comprehensive Solution introduce a new taxation for companies providing digital services and will have as such a very substantial impact on such companies. It is recommended for companies providing digital services to determine whether the Interim Solution and/or Comprehensive Solution would lead to financial/tax impact. 

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