Taxation of digital economy
von Peter Scheller
On 21 March 2018, the EU commission published a proposal in regard to the taxation of digital business activities in the European Union. There are two proposals.
Reform of corporate tax systems
The first proposal is on a reform of corporation tax rules of member states. Member states shall be able to tax profits from running digital platforms in their territories, even if the company has not physical presence in this country.
The concept determin that a digital platform shall be considered a virtuall permanent establishment and will therefore have a digital precence in the respective member state. One of the following criteria have to be fulfilled:
- The annual revenue in a member state exceeds an amount of 7 million Euro
- The platform has more than 100,000 users in the member state per tax year.
- More than 3,000 business contracts for digital services are drawn up between the company and business users in a taxable year.
Note: It remains to be seen whether this concept is not colliding with Double Taxation Conventions (DTC) between member states and non-memberstates. In general DTC allow the taxation in another state only if a company has a physical presence (permanent establishment) in this state. The provisions in DTC do not mention virtual or fictual establishments.
Interim tax on certain revenue from digital activities
This interim tax shall be in place, until above mentioned corporate tax regulations are implemented. The following services will be object to the interim tax:
The interim tax will apply to the following two main types of digital services, which would not be able to exist in their current form without user involvement:
- Revenues created by using customer’s data (through advertising or by the sale of collected data). This is designed to cover social media plattforms or search engines
- Services of digital platforms that enable interaction between users, who can then exchange services and goods via the platform (for example peer-to-peer sales apps).
The tax will be levied by the member states where the users are located. Companies will only be subject to this tax if their total annual worldwide revenues exceed 750 million Euros and EU revenues exceed 50 million Euros.