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Digital economy must gear up for EU tax reform

22 September 2017, 11:39 CET
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Digital economy must gear up for EU tax reform

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(BRUSSELS) - The EU Commission launched its agenda to reform taxation of online business Thursday, paving the way for a legislative proposal on EU rules for taxation of profits in the digital economy.

The effective tax rate of digital companies in the EU is estimated to be half that of traditional companies – and often much less. The Communication adopted by the Commission sets out the challenges EU Member States currently face on this issue and outlines possible solutions.

While acknowledging that the growing digitalisation of the economy creates important economic opportunities, Euro Commissioner Valdis Dombrovskis said: "tax systems should evolve to capture new business models while being fair, efficient and future-proof. It's also a question of sustainability of our tax revenues as traditional tax sources come under strain."

"Digital firms make vast profits from their millions of users, even if they do not have a physical presence in the EU," said Financial Affairs Commissioner Pierre Moscovici: "We now want to create a level playing field so that all companies active in the EU can compete fairly, irrespective of whether they are operating via the cloud or from brick and mortar premises."

The Commission will be pushing for a fundamental reform of international tax rules, with the aim of ensuring 'a better link between how value is created and where it is taxed'.

The EU executive says it is looking for 'a strong and ambitious EU position' from the Member States, to result in 'meaningful outcomes' in the OECD report to the G20 on this issue due next spring.

If there is not 'adequate global progress', the Commission says the EU should implement its own solutions to taxing the profits of digital economy companies.

In today's Communication, the Commission says the Common Consolidated Corporate Tax Base (CCCTB) in particular offers a good basis to address the key challenges and 'provide a sustainable, robust and fair framework for taxing all large businesses in the future'.

It says digital taxation could easily be included in the scope of final agreed rules. At the same time, it promises also to assess short term 'quick fixes' such as a targeted turnover tax and an EU-wide advertising tax.

The OECD report to the G20 in spring 2018 is expected to set out solutions to taxing the digital economy at international level, which can be integrated into an upcoming Commission proposal for binding rules in the EU's Single Market. If this is not the case, the Commission says it will be ready to present an original legislative proposal to ensure a 'fair, effective and competitive tax framework for the Digital Single Market'.

Communication: 'A Fair and Efficient Tax System in the European Union for the Digital Single Market'

Questions and Answers on the Communication on a Fair and Efficient Tax System in the EU for the Digital Single Market

Commission website: Fair Taxation of the Digital Economy

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