The EU Commission Urges Digital Taxation Reform

Author:Mr Seán O'Reilly and Neil Nolan
Profession:Ronan Daly Jermyn

On 21 September 2017 the European Commission sent out its latest communication calling on the European Parliament and international bodies to undertake and engage in substantial, far reaching reforms of the taxation systems both within and outside of the EU, to ensure that the digital marketplace is taxed in a manner it considers to be fair and effective.

The Commission's communication to the European Parliament and the Council, entitled 'A Fair and Efficient Tax System in the European Union for the Digital Single Market' (the "Communication") details how the current taxation rules in the eyes of the European Commission, "no longer fit the modern context, where businesses rely heavily on hard-to-value intangible assets, data and automation". The Commission made a number of key points in the Communication, including:

A warning that if reforms are not put in place to effectively and fairly tax the digital market, it will destabilise the playing field for businesses. The Commission goes on to claim that a failure to implement the reforms it has outlined will risk "EU competitiveness, fair taxation and the sustainability of Member States' budgets". Stating that the guiding principle for the tax reforms it is proposing is that all businesses operating within the EU should be taxed where their profits and value are generated. In a marketplace that is increasingly digitised, borderless and globalised, current taxation rules and schemes are, in the European Commission's view, incapable of dealing with the new digitised business models, from Amazon to Netflix to Facebook. Outlining how business models have changed radically from the concept of businesses being tangible 'bricks and mortar' entities, but taxation models have not. As a result, the Communication states that while traditional domestic business models have an effective tax rate within the EU of 20.9%, digital domestic business models have an effective average tax rate across the 28 EU Member States of 8.5%. In a thinly veiled reference to the ongoing Apple taxation controversy, stating that cross border digitalised businesses benefit even more, with "aggressive cross-border tax planning that can bring down the tax burden to effectively zero." The contention that continued growth of the digital economy means that such "unequal" taxation rates cannot go unchecked, with close to one third of the overall industrial output in Europe being due to the uptake in digital technologies. The...

To continue reading