EU Parliament approves EU corporate tax plan, embracing a digital presence

Fri 23 Mar 2018

On 15 March the European Parliament approved both the principle of common corporate consolidated tax base and the common corporate tax base s). Together, these two measures are aimed at plugging the gaps which have allowed some digital and global companies to drastically reduce their tax bills or avoid paying taxes where they create their profits.

The resolutions adopted provide that the benchmarks used for apportioning profits under CCCTB would include whether a business has a ‘digital presence’ in a Member State, which would create a taxable presence there.  It would consider factors such as the number of users or the volume of digital content collected in order to produce a clearer picture of where a company generates its profits. Personal data is a highly valuable asset mined by the likes of social media and search engine companies to create their wealth, but it is currently not considered when calculating their tax liabilities.

This press release is timely as it immediately follows the UK’s amended position paper on ‘Corporate Tax and the digital economy’ released at the Spring Statement (see Taxing the digital economy – a nettle the government is determined to grasp).

The press release comments:

Companies would calculate their tax bills by adding up the profits and losses of their constituent companies in all EU member states. The resulting tax would then be shared between member states depending on where the profits were generated.

Once the proposals take effect, a single set of tax rules would apply in all member states. Firms would no longer have to deal with 28 different sets of national rules, and would only be accountable to a single tax administration (a one-stop shop).

The amended text adopted for CCCTB (available here) refers to a ‘digital permanent establishment’, a concept yet to be developed, but one which the US Treasury is reportedly willing to consider.   The EU text also refers to the use of a common corporate tax base as mandatory for those businesses with consolidated revenue of €750m or more, with that threshold being reduced to zero over a seven year period.  There is also text proposing that the EU leads in developing international standards on formulary apportionment when dealing with third countries, and the development of a ‘Union model tax treaty’.

The proposed formula for apportionment would take accounts of: sales, labour (payroll and number of employees), assets and data (data collected and data exploited).

The amended text adopted for CCTB is available here.

The adopted text includes the comment that if it is not possible to achieve unanimous approval of CCCTB, as a last resort ‘enhanced cooperation’ should be adopted. The enhanced cooperation is a procedure where a minimum of 9 EU countries are allowed to establish advanced integration or cooperation in an area within EU structures but without the other EU countries being involved.

Next steps

The EU parliamentary resolutions will now be passed on to the Council and Commission for their consideration.

To discuss tax developments affecting digital business operations, please get in touch with a member of the Mazars international tax team.