EU Council agrees to stance on digital economy for tax international discussions

The EU Council today endorsed draft conclusions on the taxation of the digital economy to better enable the EU to speak with one voice in international tax discussions and to aid the EU Commission as it prepares draft legislation on this topic, slated for delivery in 2018.

“With the growth of the digital economy, we need to rethink our tax rules,” said Toomas Tõniste, minister for finance of Estonia, which currently holds the Council presidency. “We need to take international taxation rules into the digital age to ensure fair taxation for both digital and non-digital companies,” he said.

The Council said that the EU Commission could, in its proposal, assess a temporary equalization levy based on revenues from digital activities in the EU that would remain outside the scope of double tax conventions concluded by Member States.

Further, in its conclusions, the Council said that where a business is performing significant activities in a jurisdiction, its absence of physical presence should not per se prevent it from being subject to tax on its profits generated in that jurisdiction, provided an appropriate nexus reflecting value creation is used, taking into account the arm’s length principle.

The concept of ‘virtual permanent establishment’ should be explored as a potential solution, the Council agreed, coupled with amendments to transfer pricing and profit attribution rules. The Council said that the relevance and feasibility of possible elements of this appropriate nexus, such as revenue based, user-base, and digital factors, could be further explored.

The Council also highlighted the importance of various data, including user data, for value creation by the digital economy in generating profits and reiterated the need to consider and assess the
role of data in the context of the transfer pricing and profit attribution rules.



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