Back in September 2017, the European Commission set out the approach to the taxation of the digital economy. Fast-forward to March 2018 to when there were two separate legislative proposals for taxing digital business in the EU – the Digital Services Tax (DST).
The proposed digital services tax (DST) figured currently at 3% is to be implemented by member states by January 1st, 2020.
One of the main aims of the proposal is to protect the development of small business. Limiting this digital tax to companies with global revenues of €750 million and EU revenues of €50 million consolidating that aim.
The ECON (EU’s parliament economic and monetary affairs) committee has weighed in on the issue and gave recommendations to how the Commission should amend the tax proposal.
The stand-out amendment being the increase in excise tax from 3% to 5%. This revised DST (digital services tax) would level the playing field between digital and traditional business. Bricks-and-mortar businesses pay an estimate of 20.9%, increasing the digital services tax to 5% creates an imputed corporate tax rate of 20% in contrast to the 13% envisaged by the Commission.
The proposed taxation of digital business includes firms in advertising sales, intermediary activities and user-generated content. ECON is suggesting to broaden the scope of what types of companies will be tax liable. Businesses that supply content via digital interfaces and sales of goods/services via e-commerce platforms should be in the proposal.
At the Economic and Financial Affairs Council (ECOFIN) meeting on the 6th of November, proposals were discussed. Ireland, Sweden, and Denmark were all critical of the measure during the meeting.
Although there has been progress on definitions, tax collection, and administrative cooperation, two key issues found with the proposal include the scope of taxable services covered by the proposed regime and the duration the new tax would be in operation. All member states are in agreement that once a comprehensive solution to taxing the digital economy has been found at an international level, DST should cease.
The next meeting about the digital tax will be held on the 4th of December, in the meantime, there is technical work required on the proposal given identified technical issues with the details of the plans.
EU Vice-President Valdis Dombrovskis: “Reaching [a] deal as soon as possible is important for two reasons. First, our taxation system needs to be updated to reflect [the] economic realities of the 21st century. Our economies are increasingly digital and this trend is here to stay.”