Abandon Digital Services Tax Proposal: US Tells EU

Abandon Digital Services Tax Proposal: US Tells EU

The author is Alex Hunter, Editor, TP News. He oversees and updates the publication and also  regularly writes news stories about transfer pricing and international tax law. Alex is reachable on email (editor@transferpricingnews.com) and by phone (+447808558597). 

The US Senate Committee on Finance has asked the European Commission to “abandon” its proposal to introduce a three percent digital services tax on revenues arising from the supply of certain digital services.

In March 2018, the EU Commission announced it proposal to introduce an interim tax, which would cover the main digital activities that currently escape tax altogether in the EU.

The tax would apply to companies with total annual worldwide revenues of EUR750m and EU revenues of EUR50m, where these revenues are created from activities where users play a major role in value creation and which are the hardest to capture with current tax rules, such as revenues created from selling online advertising space.

In a letter written to the presidents of the European Commission and European Council, the Chairman of the US Senate Committee on Finance, Orrin Hatch, said that the EU digital tax proposal “has been designed to discriminate against US companies and undermine the international tax treaty system.”

The October 18 letter notes that digital tax proposal creates “a significant new transatlantic trade barrier that runs counter to the newly-launched US and EU dialogue to reduce such barriers.”

The letter notes: “We understand that the Austrian Presidency of the EU is pushing for an agreement in principle on the EU digital services tax proposal in the coming weeks. This is troubling news as there are multiple problems with the EU digital services tax proposal. The EU digital services tax proposal violates the long-held principle that taxes on multinationals should be profit-based, not revenue-based.”

“Further, as indicated in the leaked drafts of the current interim proposal, the turnover thresholds for the EU digital services tax proposal are discriminatory, putting in-scope companies at a competitive disadvantage without objective justification.”

“The EU claims that the digital services tax proposal is an interim measures; however, the proposal contains no end date and could conceivably last indefinitely,” Hatch noted.

Hatch urged EU member states to delay unilateral action and instead refocus efforts on reaching consensus with other leading economies within the OECD on any new digital taxation models.