EU tax news

Thu 08 Mar 2018

There have been a couple of recent updates concerning proposed EU tax measures and how they will deal with the digital economy. The first concerns how the common consolidated corporate tax base (CCCTB) will incorporate a measure based on use of personal data in the factors taken into account in determining where a multinational will be taxed.  The second concerns a leaked report on the European Commission’s (EC’s) proposed short term measure for taxing digital business.

CCCTB and taking account of digital activity

The European Monetary and Economic Affairs Committee recently approved proposals for the planned CCCTB by 38 votes to 11 (with 5 abstentions).  A separate, complementary measure which creates the basis for the harmonised corporate tax system — the Common Corporate Tax Base  — was approved by 39 votes to 12, with 5 abstentions.

Firms would calculate their tax bills by adding up the profits and losses of their constituent companies in all EU member states. Taxable profits would then be allocated to each member state where the firm operates according to a sharing formula based on sales, assets, and labour, as well as their use of personal data.  The EU’s aim is to prevent firms moving their tax base to low-tax jurisdictions.

Once the proposals take effect, a single set of tax rules would apply in all member states, and a taxpayer would be responsible to a single tax administration for their taxes across the EU (a one-stop shop). Under the Commission proposals, the legislation would cover groups of companies with a consolidated turnover exceeding €750 million.  MEPs want that threshold to be lowered to zero within seven years.

The proposals include benchmarks to determine whether a firm has a “digital presence” within an EU member state which might make it liable for tax even if it does not have a fixed place of business in that country.  The European Commission has been charged with monitoring technical standards to identify the number of users, digital contracts and the volume of digital content collected which a company exploits for data-mining purposes.  The press release indicates these measures should produce a clearer picture of where a firm generates its profits, and where it should be taxed.

EC proposals for short term measure for taxing the digital economy

Reuters has reported that a draft EC proposal seeks to tax large digital companies’ revenues based on where their users are located rather than where they are headquartered at a common rate between 1 and 5 percent.  It is reported the document proposes the tax should be applied to companies with revenues above 750 million euros ($922 million) worldwide and with EU digital revenues of at least 10 million euros a year. Other comments from the report include:

Firms selling user-targeted online ads, such as Google, or providing advertisement space on the internet, such as Facebook, Twitter or Instagram, would be subject to the tax, the document said, citing these companies.

Digital marketplaces such as Amazon and gig economy giants such as Airbnb and Uber also fall under the scope of the draft proposal, the Commission said.

Online media, streaming services like Netflix, online gaming, cloud computing or IT services would instead be exempt from the tax.

The UK’s digital economy position paper indicated that a tax on digital revenues was an important method to consider in how to respond to the tax issues of the digital economy, though the scope of the activities that would be subject to the tax under the UK proposal would appear to be narrower than that proposed by the EU.  Financial Secretary to the Treasury Mel Stride indicated recently to the BBC that a revenue tax was the UK Government’s preferred approach, and that if it proved too difficult to work with the EU on this, it would initiate its own action (see here).

For a further discussion of European and international tax developments and how they could impact your business, please get in touch with a member of the Mazars international tax team.