EU Commission proposes measures on Digital Taxation
Profits made through digital activities, such as selling user-generated data and content, are not captured by today’s tax rules. On 21 March 2018, the European Commission proposed two news rules to ensure that digital business activities are taxed in a fair and growth-friendly way in the EU.
The first proposal aims for a common EU solution for digital activities – a single market in which digital companies can do business and grow, while paying their fair share of taxes.
Through this initiative, companies would have to pay tax in each Member State where they have a significant digital presence reaching one of the following thresholds:
- Annual revenues from supplying digital services exceeding €7 million
- Number of users in a Member State exceeding 100,000 per year
- Number of business contracts for digital services exceeding 3,000 per year
The attribution of profit will take into account the market values of:
- Profits from user data, ex. placement of advertising
- Services connecting users, ex. online marketplace
- Other digital services, ex. subscription to streaming services
The new rules will 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. The measure could also eventually be integrated into the scope of the Common Consolidated Corporate Tax Base (CCCTB).
The Commission proposed an interim tax of 3% on revenues made from three main types of services, where the main value is created through user participation.
This new tax:
- ensures that those activities which are currently not effectively taxed would begin to generate immediate revenues for Member States; and
- helps to avoid Member States taking unilateral measures which will further fragment the Single Market.
Who would be affected?
The main types of services that would be captured by this tax would be:
- Sale of online advertising space
- Sale of data generated from user-provided information
- Digital platforms that facilitate interaction between users
The new tax will only apply to companies with total annual worldwide revenues of €750 million and EU revenues of €50 million – smaller start-ups and scale-up businesses will be unaffected.
When will the tax take effect?
Not immediately. The legislative proposals will be submitted to the Council for adoption and to the European Parliament for consultation and could take months to be approved. The EU will also continue to actively contribute to the global discussions on digital taxation within the G20/OECD and push for international solutions.