On 21st September 2017 the European Commission issued a communication to the European Parliament and the Council in which it opens the issue of taxation in the EU Digital Single Market (DSM) which is one of the 10 political priorities of the European Commission.
The digital transformation of the economy accelerates and businesses rely heavily on hard-to-value intangible assets, data and automation, which facilitate online trading across borders with no physical presence. The taxation, however, have not been adequately addressed yet, primarily due to a lack of international consensus and the multidimensional nature of the challenge. This brings more opportunities for tax avoidance, impact on social fairness, including through erosion of the social budgets, and it may destabilise the level playing field for businesses.
The Commission is of the view that the main challenge now is to reform the international tax framework, which was first designed at the start of the twentieth century and is no longer fit for purpose. The underlying principle for corporation tax is that profits should be taxed where the value is created. However, in a digitalised world, it is not always very clear what that value is, how to measure it, or where it is created. The new rules are necessary to determine where the value of businesses is created and how it should be attributed for tax purposes. The transfer pricing rules to attribute the profit of multinational groups to the different countries also need some review. One of the proposals at EU level to address these challenges is the Common Consolidated Corporate Tax Base. (This is a single set of rules to calculate companies' taxable profits in the EU.)
The Commission considers that EU Member States should have a coordinated position at global level, but first they should examine all possible options so as to adopt new rules for taxing the digital economy within the Single Market.
23-10-2017