- Working groups
European Commission (‘EC’) proposals for Council Directives on the common system of a digital services tax (‘DST’) on revenues resulting from the provision of certain digital services, and laying down rules relating to the corporate taxation of a significant digital presence.
The ETNO-GSMA Tax Policy Committee (hereinafter The Committee) has taken this opportunity to provide its views on the EC proposals for Council Directives to introduce DST (‘the Interim Solution’) and introducing rules relating to the corporate taxation of a significant digital presence (‘the Long Term Solution’), and would like to provide the following comments.
The Committee believes that increasing public understanding of, and trust in, the tax system is strongly in the interest of the public and of each and every business. The Committee hence welcomes the current debate on the taxation of the Digital Economy. We also consider it appropriate for the Digital Economy to be taxed in a transparent way with profits taxed where value is created, including where material value (critical to that digital business’s success) is clearly proven to be generated by users.
We also applaud the speed at which the EC and OECD are acting, and agree that business and governments should engage to achieve multilateral consensus and a meaningful long-term and coordinated international solution as soon as possible; one that focusses on the future adoption of a new permanent establishment definition and profit attribution between territories at an international level. We believe that ideally this kind of solution should be tackled at the OECD level, rather than the European Union level, except if no consensus were reached soon, and would give businesses increased certainty and reduce complexity going forwards.
In respect of the proposed Interim Solution measures, our view is that a company’s appropriate tax liability should be based on the profit generated from the company’s business activities in that country, not a company’s revenues (which are not an indicator of profit). In addition, whilst we understand it has been necessary to include purely domestic transactions in the scope of the proposed DST in order to overcome EU discrimination issues this will also create significant administration and double taxation in a domestic environment.
However, we are aware that some EU countries have already announced, or are expected to announce, a unilateral DST that would follow EC recommendations. Measures that do not prevent unfair double taxation of companies already taxed in the country will increase double taxation disputes, and would certainly lead to an ever-increasing complexity in the field of international taxation. If discussions on interim measures, either at a country or EU level, are taken forward, despite the above concerns we consider it important that the EC and individual Member States ensure that DST is fit-for-purpose.
At present many technical questions have not been adequately addressed and we therefore propose the DST is amended to address the following four matters: