EU finance ministers agree to draft digital tax laws for IT giants

The EU is closer to reaching agreement on draft rules for a pan-European digital tax basis for major multinational IT giants such as Amazon and Google, with proposals based on permanent establishment status due to be released in spring 2018

At the Estonian presidency EU council meeting over the weekend, EU member states of the Ecofin council discussed proposals to introduce rules focusing on the volume of digital business conducted in the country.

The legislative basis for the tax plan to make online companies such as Amazon and Google pay taxes where they are due would be to use the principle of virtual permanent establishment, whereby digital firms would have to pay taxes in countries where they have a ‘significant digital presence’.

This is in line with the OECD Base Erosion and Profit Shifting (BEPS) action plan, but there are concerns that the hard line of the tax base would be damaging. A third of EU member states are in favour of

A political statement issued at the presidency on the joint initiative on the taxation of companies operating in the digital economy, signed by 10 EU finance ministers, including Germany’s Wolfgang Shauble, France’s Bruno Le Maire and Italy’s Pier-Carlo Padoan, stated: ‘Being able to appropriately tax the companies operating in the digital economy is a major challenge for the European Union.

‘We would like to move ahead quickly at EU level. Therefore we ask the EU Commission [sic] to explore EU law compatible options and propose any effective solutions based on the concept of establishing a so-called “equalisation tax” on the turnover generated in Europe by the digital companies. The amounts raised would aim to reflect some of what these companies should be paying in terms of corporate tax.’

Plans for a consolidated common corporate tax base across the EU, effectively creating a single EU-wide corporation tax rate, would not be affected by the proposals for a multinational digital tax.

The political statement on the joint initiative on the taxation of companies operating in the digital economy, signed by 10 EU finance ministers, is here

VAT reform ongoing

The calls for reforms to digital tax come as the EU accelerates its VAT modernisation programme. The Estonian Presidency will focus on modernising the VAT system and will work to achieve political agreement on draft legislation on reduced VAT rates for e-publications, including e-books, and digital newspapers and periodicals, which member states will be able to apply on a voluntary basis.

The plan is also to set out new rules on the general reverse charge mechanism by the end of the year.

It will also try to secure an agreement on the main elements of the VAT e-commerce proposal, and outline plans for reform of the definite VAT system and reduced rates.

By Sara White

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