The European Commission today proposed new rules for the taxation of digital business activities in the EU.
As noted in an EC release, digital businesses—including social media companies, collaborative platforms, and online content providers—have contributed to economic growth in the EU. Current tax rules, however, were not designed to consider companies that are global, virtual or have little or no physical presence. Hence, two legislative proposals are being put forward to provide for “fairer taxation of digital activities” in the EU:
Read a March 2018 report prepared by KPMG’s EU Tax Centre
This proposal would enable EU Member States to tax profits that are generated in their territory, even if a company does not have a physical presence within the country. The new rules would aim for online businesses to contribute to public finances at the same level as traditional brick-and-mortar companies. Under the proposal, a digital platform would be deemed to have a taxable “digital presence” or a virtual permanent establishment in an EU Member State if it satisfies one of the following criteria:
The new rules also would affect how profits are allocated to EU Member States to better reflect how companies can create value online (for example, depending on where the user is based at the time of consumption).
As the EC release explains, the new system would provide “a real link” between where digital profits are made and where they are taxed, and the measure could eventually be integrated into the scope of the Common Consolidated Corporate Tax Base (CCCTB) (the EC’s proposed initiative for allocating profits of large multinational groups to reflect where the value is created).
The proposed interim tax would provide that activities that are currently not “effectively taxed” would begin to generate immediate revenues for EU Member States. This could help avoid unilateral measures to tax digital activities in certain EU Member States and avoid a patchwork of national responses. This indirect tax would apply to revenues created from certain digital activities that currently escape tax. This system would apply only as an interim measure, until the comprehensive reform would be implemented. There would be mechanisms to alleviate the possibility of double taxation.
The interim tax would apply to revenues created from certain activities such as revenues:
Tax revenues would be collected by the EU Member States where the users are located, and would only apply to companies with total annual worldwide revenues of €750 million and EU revenues of €50 million.
The legislative proposals will be submitted to the Council for adoption and to the European Parliament for consultation.
Read a March 2018 report prepared by the KPMG member firm in Belgium
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.