Fair taxation of the digital economy: a new tax challenge

  • On 21 March 2018, the EU Commission issued two directive proposals aiming to ensure that tax laws “fairly” tax digital business activities. The first proposal aims at reforming the EU's corporate tax rules for digital activities while the second one aims at introducing an interim tax on certain revenue from digital activities.
  • The first directive proposal aims at establishing a taxable nexus for digital businesses operating across borders without a physical commercial presence. It should be regarded as a new concept of permanent establishment to be added to the current ones, for the purposes of corporate tax in each Member State.
  • The second directive proposal addresses the so-called Digital Services Tax. This interim tax will ensure that digital activities which are currently not effectively taxed, under the current corporate tax rules, would begin to generate immediate revenue for Member States.
  • The legislative proposals will be submitted to the EU Council for adoption and to the EU Parliament for consultation. According to the proposals, new rules should be implemented into Member States's corporate income tax systems by 31 December 2019 at the latest. However, some Member States, such as Luxembourg, have already announced that they would not agree on the directive proposals if no agreement is reached at the OECD level.

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