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The EU Abandons its Digital Taxation Plans

May 10, 2019

The digital economy has expanded tremendously over the last few years. By their nature, some digital activities represent a challenge to the current taxation systems, as taxes are sometimes not due in the countries where the value is generated.

 

The European Union has been working over the last two years on adapting the Member States’ tax system to the needs of the digital economy.

 

On October 19, 2017, the European Council issued conclusions on the issue, stressing the importance of ensuring that “all companies pay their fair share of taxes and to ensure a global level-playing field in the line with the work currently underway at the OECD”.

 

On March 21, 2018, the European Commission made two legislative proposals on the topic:

 

  • Long term solution: the reform of the corporate tax rules to ensure that gains are booked and taxed where companies have significant relations with the user.

 

  • Interim tax: a solution to cover the principal digital activities which are for the time being entirely escaping tax in the EU.

 

The topic in general and the proposals of the Commission in particular have further been discussed by the EU leaders, at the level of the European Council. All Member States have agreed that the solution at the EU level should take the outcome of discussions at the OECD (where the issue is also discussed into consideration.

 

Recently, on March 12, 2019, the Council took note that although progress has been made in the negotiations between Member States on the topic, some of them uphold reservations on some aspects of the proposal.

 

Therefore, it has been decided that the Council presidency will “work on the EU position in international discussions on digital tax, in particular on the view of OECD’s report on the issue, due by mid-2020”.

 

We shall hope that the discussions will evolve in a constructive and efficient manner, as due to ever increasing digitalization of the world, the matter needs to be addressed and resolved quickly.

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