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Digital economy update: EU coordination increasingly unlikely, and the OECD presses on separately

Digital economy update: EU coordination increasingly

ECOFIN fails to reach agreement on digital advertising tax compromise text but the OECD is pressing forward with a global response.

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The Economic and Financial Affairs Council of the EU (ECOFIN) did not manage to reach agreement on the digital advertising tax (DAT) during the 12 March 2019 meeting. Member States’ representatives held an exchange of views on an amended version of the Commission’s Digital Services Tax (DST) proposal, but failed to reach consensus on a compromise text tabled by the Romanian Presidency of the EU.

With a fast-tracked EU solution now looking increasingly unlikely, the international focus is shifting to the OECD’s attempt to achieve consensus around a broader global position based on user participation, marketing intangibles, or the significant economic presence concept. The OECD sought public comments on these possible solutions to taxing the digitalisation of the economy in Paris on 13-14 March. There were over 400 attendees, and the debate was lively and engaging. The OECD is now moving ahead, conducting an impact assessment, and aims to present an update to the G20 finance minister meeting in June.

In the meantime the UK continues to press on with a domestic DST as confirmed by the UK Chancellor’s comments in the Spring Statement on 13 March (for more information on the DST you can access the specific article in this edition of Tax Matters Digest.

The UK is not alone in pursuing unilateral action. There are now five other confirmed measures in Europe (Austria, Belgium, France, Italy, and Spain). Even Germany is rumoured to be looking closely at a possible 15 per cent withholding tax on digital advertising revenues.

This patchwork approach to the digital economy is likely to present ever-increasing challenges to being compliant (and also brings with it the attendant risk of double taxation). Hopes are now pinned on the OECD having the ability to develop a solution that can achieve international political consensus. We will be watching developments with interest, and will continue to engage in the consultation process.

For more information on the ECOFIN meeting and the DAT please refer to the Euro Tax Flash published by KPMG’s EU Tax Centre.

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