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 European Economic and Social Committee (EESC) has called for a fair, consensus-based international solution at the OECD-level to tackle tax challenges posed by the digital economy.
The EU advisory body said that contrary to common international corporate taxation practice, the European Commission’s proposals aims to tax businesses’ turnover instead of profits, and to levy taxes where sales take place instead of where value is created. This approach, it noted, could jeopardize the integrity of the EU single market and lead to double taxation.
The Committee raised these and others concerns over the Commission’s proposals in an opinion on the subject, which was adopted at the EESC plenary session on July 12.
On March 21, 2018, the Commission 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.
According to the Committee, any solution for the taxation of digital business models proposed for the EU-level must consider the global dimension and should be in line with international achievements in this field to ensure coherence and real support for consensus-building at OECD-level.
Krister Andersson (Employers’ Group), rapporteur for the EESC opinion, said: “It is essential that any solution on corporate tax rules for digital activities creates a level-playing field for all EU economies. As a consequence, the Committee calls for a complementary assessment of the impact of the proposed interim measure on investments, start-ups, SMEs, jobs, and growth.”
The EESC emphasized the need for fair and consensus-based solutions. “It is very important to develop new principles on how to attribute corporate profits to an EU country and tax them, as the European economy is changing very rapidly because of digitalization,” said Petru Sorin Dandea (Workers’ Group), the co-rapporteur.
Finally, the Committee highlighted the urgent need for the swift establishment of tax principles, which adequately cover the digital sector.
“All companies engaged in digital services must contribute to public finances and share the tax burden needed to finance public services. This is the only way to ensure a sustainable future for our next generations,” Petru Sorin Dandea said.