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EC Holds Consultations on Taxation of Digital Economy

The European Commission has made an announcement about the start of public consultations on the issues related to taxation of digital economy. The purpose of such an event is to develop an optimal approach to this aspect of the EU tax policy. The consultations are organized in the form of a questionnaire, and it is indicated in the relevant materials that the Commission “studies possible solutions to certain taxation problems caused by digitalization”. First of all, the EC is focused on creating more equitable and efficient tax system, supporting state revenues and ensuring equal conditions for business. In addition, it has plans to develop the necessary measures to support the growth and competitiveness of the European Union by creating a single digital market. At the same time, the Commission emphasizes the possible need for a two-stage approach, in which, after adoption of a “target-oriented, temporary solution”, a “comprehensive, long-term package of measures” will follow. The respondents are offered a list of temporary and long-term measures with the need to indicate to what extent each of them will help to solve existing problems. The temporary solutions are the following:
  • tax based on income gained from “digital activities”;
  • income tax based on payments to non-resident suppliers of goods or services ordered through the Internet;
  • tax based on income from digital transactions concluded remotely with a non-resident entity having the signs of “significant economic presence”;
  • tax on digital transactions, collected at the very beginning of the price-forming process.
As long-term measures, the participants of the questionnaire are offered:
  • new EU rules regarding permanent representations and profit distribution, announced through the amended proposal for the Common Consolidated Corporate Tax Base (CCCTB);
  • new rules regarding permanent representation and distribution of profits in relation to the digital activities of enterprises within the framework of separate EU directive;
  • the application of the “destination-principle” to the corporate taxation, according to which the right to levy a tax is formed depending on the location of the consumer;
  • tax on the share of global profits of digital companies, which can be attributed to each country on the basis of the percentage of revenues received on its territory;
  • the system in which the company’s profit is declared and taxed in the Member State of the institution – according to how it is being implemented at the present time, but using the rate that is the arithmetic mean of the average values ​​of tax rates in the countries where the company’s turnover is made.
The consultations are scheduled to be completed on January 3, 2018.