Digital taxation: towards a European taxation?

On March 21st 2018, the European Commission published two draft directives related to digital taxation.

Since the European summit in Tallinn last September, Member States have been searching the best way to tax these hard-to-figure incomes. France, through its Minister of the Economy and Finance, has been offensive on this subject. The Commission has proposed a directive with a comprehensive solution to be implemented in the long term and a directive that could enter into force more rapidly, with an interim tax.

The Commission already reiterated its attachment to a global solution but also underlined the urgency of finding a solution in order to avoid the multiplication of specific taxes that each Member State could introduce (some of them have already started, such as the United Kingdom and Italy), this intermediate directive must, as a transitional measure, permit the quantification of the “digital presence” of companies in each country, in order to replace the “old” definition of permanent establishment attached to physical presence, in the face of these new dematerialized companies. In the end, it should eventually be incorporated into the CCCTB determination rules.

The Commission proposal would focus on two types of digital activities resulting from the creation of value by users:

  • Services consisting in the valorization of user data through the provision of advertising space or the sale of these data
  • Services rendered by “exchange” or “intermediation” platforms which enable users to enter into relationship

Companies subject to this tax would be those which meet two cumulative conditions:

  • Have annual worldwide revenues exceeding 750 million euros
  • Generate annual revenues exceeding 10 or 20 million euros from these digital services offered within the European Union

This tax would be charged annually and would apply to the gross income of companies, at a single rate of 3% for all European countries. It would apply to European companies (domestic and cross-border transactions between Member States) and non-European companies (cross-border transactions between Member States and third countries). In order to limit the risks of double taxation, this tax would be deductible in each country from the corporate tax base.

This tax should be paid as near as possible to where the service is used (the place where users are located or the place of payment for access or use of the platforms) by a “one-stop shop” mechanism, also used for filing returns.

Eric Lesprit

Eric has more than 25 years’ experience in transfer pricing and international tax. He held various senior positions at the French Tax Administration in relation to tax audit, tax policy […]