BusinessEurope Calls for Global Agreement on Digital Economy Taxation

BusinessEurope Calls for Global Agreement on Digital Economy Taxation

The Confederation of European Business (BusinessEurope) has said that a global agreement is needed on changes to international tax rules concerning the digital economy to ensure a global level-playing field encompassing all major tax jurisdictions.

The European Commission in March this year proposed new rules to ensure that digital business activities are taxed in a fair and growth-friendly way in the EU. The Commission made two legislative proposals. The first initiative aims to reform corporate tax rules so that profits are registered and taxed where businesses have significant interaction with users through digital channels (preferred long-term solution).

The second proposal responds to calls from several member states for an interim tax, which covers the main digital activities that currently escape tax altogether in the EU.

In a position paper issued on July 13, 2018, BusinessEurope said that “a unilateral EU legislative proposal, aiming to define a digital permanent establishment (PE) may be interpreted by third countries as a means to anticipate and bypass the international consensus. Even if an EU-proposal succeeds in spreading the tax principle among the member states, it risks jeopardizing the international scenario, leading to an adoption of different digital PE-definitions between the EU and the rest of the world, eventually resulting in increased uncertainty and double taxation.”

The Confederation said that “the European Commission’s proposal for a short-term solution for a Digital Services Tax, breaks with the international convention of taxing company profits not revenue, and thus risks increasing double taxation of companies as well as damaging our competitiveness, jobs, and investment if applied unilaterally in the EU.”

“Through a global consensus, on the appropriate division of taxation rights over corporate profits derived from the digitalization of the economy, can we hope to modernize the international tax system in a coherent and lasting way, preserving the benefits of both globalization and digitalization,” the statement notes.

The Confederation said: “The OECD will already in 2019 present another report on the matter and will issue a final report in 2020. Whilst allowing the OECD a reasonable opportunity to reach global agreement, the European Commission should, in parallel, to its joint and continued efforts with the OECD, undertake a thorough analysis with a view to identifying ways forward for the EU to address any clearly identified distortions in the taxation of the profits of digital and non-digital businesses, without undermining the competitiveness of EU industry.”

“All analysis and impact assessment conducted by the European Commission should be made public. One of the objectives, while respecting the sole competence of member states in the field of taxation, must be to avoid any unilateral action by member states,” it added.