France and Germany urged the EU Council to adopt the proposed digital services tax by March 2019.
In view of a new compromise text issued by France and Germany, the European Commission’s proposal to levy an EU-wide digital services tax was abandoned by EU finance ministers at the ECOFIN meeting held on December 4.
In March 2018, the EU Commission announced a proposal to introduce a three percent digital services tax to be applied to companies with total annual worldwide revenues of EUR750m and EU revenues of EUR50m, where these revenues are created from activities, such as revenues created from selling online advertising space, digital intermediary activities, and sale of data generated from user-provided information.
However, at this stage, finance ministers could not agree on some specific points of the Commission’s proposal, and the EU Presidency recommended that “the EU Council continues working on the basis of the elements proposed by France and Germany, with the aim of reaching an agreement as soon as possible.”
The new draft shared by France and Germany proposes a three percent digital services tax on “a tax base referring to advertisement,” mainly in an attempt to reach a compromise after few member states such as Ireland and Sweden expressed concerns about the Commission’s proposal.
In a joint declaration, France and Germany urged the EU Council to adopt the proposed digital services tax “without delay and in any case before March 2019 at the latest.”
— Valdis Dombrovskis (@VDombrovskis) December 4, 2018
The digital services tax is intended to enter into force on January 1, 2021, if no international solution is agreed upon.
According to the joint declaration, the proposed directive would not prevent EU member states from introducing in their domestic legislation a digital tax on a broader base. “In case such an international solution has been agreed and subsequently translated in EU law before January 1, 2021, the implementation of this directive will be withdrawn [by a majority vote]. It will expire by 2025,” the joint declaration states.
The joint declaration adds: “We reaffirm our determination to establish a fair and effective taxation of large digital companies that will contribute to the modernization of our tax systems. We expect the OECD will reach an agreement by 2020 on proposals aimed at tackling the challenges raised by the digitalization of the economy and tax avoidance.”
“We will discuss proposals on taxing the digital economy and minimum taxation also in the G7 and G20. We are committed to immediately implement an OECD outcome into binding European law.”
The new digital services tax would require the support of all EU member states.
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 at email@example.com