Considerations on COM(2018)147 - Rules relating to the corporate taxation of a significant digital presence - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2018)147 - Rules relating to the corporate taxation of a significant digital presence. |
|---|---|
| document | COM(2018)147  |
| date | March 21, 2018 |
(2) The Base Erosion and Profit Shifting (BEPS) Action 1 report on 'Addressing the Tax Challenges of the Digital Economy' released by the OECD in October 2015 set out various different approaches for taxing the digital economy which were further examined in the OECD "Tax challenges Arising from Digitalisation – Interim Report 2018". As the digital transformation of the economy accelerates there is a growing need to find solutions to ensure a fair and effective taxation of digital companies.
(3) The Commission Communication on 'A Fair and Efficient Tax System in the European Union for the Digital Single Market' adopted on 21 September 2017 stated that new international rules are needed specific to the challenges raised by the digital economy in order to determine where the value of businesses is created and how that value should be attributed for tax purposes. These new rules would entail reform of the existing international tax rules on the definition of a permanent establishment and the profit attribution applicable to digital activities.
(4) The European Council Conclusions of 19 October 2017 underlined the need for an effective and fair taxation system fit for the digital era and looked forward to appropriate Commission proposals by early 2018. 15 The ECOFIN Council Conclusions of 5 December 2017 underlined that a globally accepted definition of permanent establishment and the related transfer pricing and profit attribution rules should also remain pivotal when addressing the challenges of taxation of profits of the digital economy" and encourages "close cooperation between the EU, the OECD and other international partners in responding to the challenges of taxation of profits of the digital economy. 16
In this regard, Member States should be required to include rules in their national corporate income tax systems in order to exercise their taxing rights. Therefore, the various applicable corporate taxes in the Member States should be clarified. These rules should extend the definition of a permanent establishment and establish a taxable nexus for a significant digital presence in their respective jurisdictions. In addition, general principles for allocating taxable profits to such a digital presence should be laid down. In principle, those rules should apply to all corporate taxpayers irrespective of where they are tax resident, whether in the Union or elsewhere.
(5) However, the rules should not apply to entities that are tax resident in a non-Union jurisdiction with which the Member State of the significant digital presence has a Double Tax Convention in force, unless the Convention includes provisions on a significant digital presence which creates similar rights and obligations in relation to the non-Union jurisdiction as are created by this Directive. This is to avoid any conflict with Double Tax Conventions with non-Union jurisdictions, given that non-Union jurisdictions are not generally bound by Union law.
(6) In order to provide for a robust definition of a taxable nexus of a digital business in a Member State it is necessary that such a definition is based on the revenues from the supply of digital services, the number of users or the number of business contracts for digital services. The applicable thresholds should reflect the significance of the digital presence for different types of business models and accommodate the different degrees of contribution to the process of value creation. Furthermore, they should ensure a compatible treatment in different Member States, irrespective of their size, and leave out trivial cases. The sale of goods or services which is facilitated by using the internet or an electronic network should not be regarded as a digital service within the meaning of this Directive.
(7) To enable an enterprise's significant digital presence to be taxed in another jurisdiction in accordance with the domestic law of that jurisdiction, it is necessary to establish the principles of attributing profits to that significant digital presence. The rules should be built on the current principles for profit attribution and be based on a functional analysis of the functions performed, assets used and risks assumed by a significant digital presence in performing its economically significant activities through a digital interface. Particular attention should be paid to the fact that a significant part of the value of a digital business is created where the users are based and where the data related to the users is collected and processed as well as to where the digital services are provided. Since economically significant activities performed by a significant digital presence contribute in a unique manner to value creation in digital business models, the profit split method should normally be used for arriving at a fair allocation of profits to the significant digital presence. However, this should not prevent a taxpayer from using an alternative method in line with internationally accepted principles if the taxpayer can prove that, based on the outcome of the functional analysis, an alternative method in line with internationally accepted principles is more appropriate. It is also essential that the profit splitting factors bear a strong correlation with the creation of value.
(8) A key objective of this Directive is to improve the resilience of the internal market as a whole in order to address the challenges of taxation of the digitalised economy. This objective cannot be sufficiently achieved by the Member States acting individually because digital businesses are able to operate cross-border without having any physical presence in a jurisdiction and rules are therefore needed to ensure that they pay taxes in the jurisdictions where they make profits. Given this cross-border dimension an initiative at Union level adds value in comparison with what a multitude of national measures could attain. A common initiative across the internal market is required to ensure a harmonised application of the rules on a significant digital presence within the Union. Unilateral and divergent approaches by each Member State could be ineffective and fragment the Single Market by creating national policy clashes, distortions and tax obstacles for businesses in the Union. Since the objectives of this Directive can be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives.
(9) It is necessary that any processing of personal data carried out in the context of this Directive, should be conducted in accordance with Regulation (EU) 2016/679 of the European Parliament and of the Council 17 , including obligations to provide appropriate technical and organisational measures to comply with the obligations imposed by that Regulation, in particular those relating to the lawfulness of the processing, the security of the processing activities, the provision of information and the rights of data subjects, data protection by design and by default. Whenever possible, personal data should be rendered anonymous.
(10) The Commission should evaluate the implementation of this Directive five years after its entry into force and report to the Council thereon. Member States should communicate to the Commission all information necessary for this evaluation. An advisory DigiTax Committee should be established to examine questions on the application of the Directive.
(11) In accordance with the Joint Political Declaration of 28 September 2011 of Member States and the Commission on explanatory documents 18 , Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments. With regard to this Directive, the legislator considers the transmission of such documents to be justified.
(12) Member States should be required to apply the provisions of this Directive from the next tax period starting after the transposition deadline. This is to ensure that the new provisions begin to apply in each Member State from a date that is as closely aligned as possible, but taking into account the fact that different Member States may have different tax periods.