Estonia has warned its peers against the temptation to use “quick fixes” to make sure internet giants such as Amazon and Google pay their fair share of taxes.
Estonia will host an international conference on taxing the digital economy September 7 and an informal meeting of the EU finance ministers September 15-16. “Where the problem lies in the nontaxation of internet advertisements, it is, for instance, possible to introduce an online advertisement tax,” the Estonian presidency of the EU Council wrote in a document prepared for the finance ministers’ informal meeting. Similarly, for the nontaxation of video streaming, “it is possible to launch a tax equal to a more traditional levy on DVDs,” the presidency wrote. When tax revenues are not collected because large volumes of different digital services in one jurisdiction are rendered by nonresidents, the introduction of a withholding tax or an equalization levy on those transactions could be considered, the presidency noted.
The Estonian presidency also raised three issues regarding those kinds of levies. First, they are usually imposed in addition to the corporate income tax on profits, meaning that “they will not level the playing field for businesses if part of them is still not paying a fair share of taxes on profits,” according to the document.
Second, if the levies are applied in such a way that they would substitute for taxes on profits, double or multiple taxation could arise and the new EU dispute resolution mechanism will not apply in such cases.
Finally, digital businesses might still be looking for a source of income, the Estonian presidency said, emphasizing that some of them, including Twitter, have failed to turn a profit. The source of income also changes over time, it said, noting that YouTube has just introduced an advertisement-free version for paying users. “Therefore, the revenue from those taxes and fees would be highly volatile and unsustainable as new business models arise,” the presidency said.
The presidency concluded that connecting the taxation of the digital economy with the source of income through quick fixes “may not be a reliable solution in the long run.”
The presidency stated that the underlying principles of corporate income tax, such as the taxation of profits where the value is created, have withstood the test of time. “The most promising way forward would be to amend the current international corporate tax rules to fill in the gap that enables the profits earned from businesses in the digitalized economy to escape fair taxation,” it said.
Instead of reinventing the wheel, the presidency suggested bringing “suitable alterations within the current framework,” which would entail “modifying the concept of permanent establishment and enhancing the rules for attribution of profits to the newly modified permanent establishment reflecting the value created by it.” Then, even without physical presence, a business with significant digital presence would be deemed to have a virtual PE in a jurisdiction of operation and thus be liable to its corporate tax regulations.
The September 16 meeting also will provide an opportunity for French Finance Minister Bruno Le Maire to present his country’s ideas. It was supposed to be a French-German proposal, but the German delegation has backed off, according to the French media.
The French ideas involve three issues: What presence does a company have? What is the tax base? How do Europeans share the cake?
The French have the beginnings of an answer for the second issue: Drop the tax on benefits and tax the turnover instead. In its most ambitious form, this could mean that the turnover would be consolidated at the EU level and then shared among EU countries where a company has its activities.
Taxing the digital economy is one of EU Tax Commissioner Pierre Moscovici’s three priorities. He told a few reporters September 5 that the EU has to define what a taxable presence is. Even if the OECD has been tasked with looking at the issue, he said, the G-20 has its criteria and its limitations because of its “perimeter,” meaning its members, which include the U.S. “There is room for European initiatives. We have to go further and faster. I can feel impatience from member states, so we can’t wait for the work of the OECD,” he said.
In its document, the Estonian presidency asked ministers if they think they could agree on a way forward for the Economic and Financial Affairs Council in December to provide EU input to the OECD regarding a global solution.
By Elodie LAMER
Cette information est extraite de notre service d'actualité taxnotes
