With this Update we would like to bring to your attention various developments concerning the tax treatment of the digital economy, including digital services tax and the taxation of online, remote sales.
EU: Taxation of digital economy, public consultation launched
The European Commission (EC) launched a public consultation initiative regarding considerations for a possible proposal for taxation of the digital economy.
According to the EC consultation release, interested parties are asked to provide feedback on an inception impact assessment, as well as to respond to a detailed public consultation questionnaire about challenges related to taxing the digital economy and on possible solutions to these issues.
The challenges of taxing the digitalized economy have been on the EU agenda for several years, but EU-wide initiatives were put on hold in anticipation of a global solution to be agreed upon at the OECD level. An EU long-term budget was formally adopted in December 2020, and this budget included a commitment to put forward a proposal for a digital levy as an “EU own resource.”
A proposal from the EC is expected by June 2021, with a view to the introduction of a digital levy by no later than 1 January 2023.
Scope of consultation
The general objective of the EC consultation focuses on a to-be-designed measure that would allow for a “fair contribution” from companies active in the digital environment. In line with its ambitious target of publishing a proposal by the second quarter of 2021, the EC launched two requests for feedback.
Preliminary feedback on the inception impact assessment
A first step would be to collect feedback and relevant information from stakeholders on the intended initiative, and to reflect the EC’s understanding of the issue and the preliminary assessment of the expected economic, social, and environmental impact.
Details of the tax policy options have not yet been set out, but the EC has confirmed that the expected legislative proposal would take into consideration any agreement reached by the OECD and would identify additional measures such as:
- A corporate income tax “top-up” to be applied to all companies conducting certain digital activities in the EU
- A tax on revenues realized from certain digital activities conducted in the EU
- A tax on digital business-to-business transactions conducted in the EU
The due date for comments and feedback is 11 February 2021. The comments and feedback received will be published on the EC’s website and will be taken into account in “fine tuning” the proposal for a digital levy.
As a second step, the EU on 18 January 2021 launched a more targeted public consultation, based on a questionnaire, asking stakeholders to provided their views on, among other items, the current challenges of taxation in the digitalized economy; possible solutions to address these challenges; the appropriate level for solving the issues (e.g., national, EU, beyond the EU or a combination of various levels); the scope of the digital levy; and the most appropriate options to determine where the revenues generated from digital activities are to be taxed.
Interested parties are asked to provide further comments and explanations in a separate paper, to be uploaded as part of their response. Comments and feedback can be submitted by 12 April 2021.
The EC is expected to publish the draft proposal for the EU digital levy by June 2021.
Italy: Implementing decree for digital services tax; new deadlines
The Italian tax authority published a new decree to implement the rules concerning the digital services tax.
The implementing decree was published in draft format on 17 December 2020 and then subject to a consultation period that ended 31 December 2020.
As approved, the final text of the implement decree reflects several changes from the draft document, including that the new deadlines are now 16 March 2021 for payment of the digital services tax for FY 2020 and 30 April 2021 for filing of the of the annual return for the digital services tax.
Other measures in the final version of the decree include:
- Definition of “multilateral digital interface”—an interface that allows users to be in contact and to interact with each other, also for the purpose of facilitating the direct provision of goods and services. The new definition seems broader than the prior definition of this term, one that referred to interfaces allowing users to upload and share digital content with other users, facilitating the underlying supplies of goods or services directly between users.
- Tax thresholds—the threshold of €5.5 million of digital services generated in Italy refers to revenue that is received rather than realized; therefore, the criterion is to be met on a cash basis rather than an accounting basis.
- Liability of the group representative—the group representative entity is jointly liable, together with the group companies that have appointed the representative, for their tax payments and reporting obligations.
- Digital services tax, group representative—the group representative must be one a resident of or established in Italy. The draft version stated that the selected representative must be one of the taxable entities that is a resident of or established in Italy. It is not clear whether the new wording means that there is an obligation to appoint an Italian entity of the group even if that entity is not subject to and liable for the digital services tax. A non-resident taxable entity, established in a country other than an “uncooperative jurisdiction,” could be appointed as digital services tax group representative if there are no Italian resident or established entities.
- Italian entity responsibility—even if it is not a taxable entity for the purposes of the digital services tax, an entity that is a resident in Italy and part of a group with non-resident taxable entities is jointly liable, together with those non-resident taxable entities that are established in a country other than an uncooperative jurisdiction, for the digital services tax payments.
How can KPMG assist?
Should you like to further discuss the content and potential impact of the above to your business, please contact one of our trusted advisors from the Indirect Tax practice at KPMG Cyprus.
KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.