EU Commission To Unveil Guidelines on Taxing Digital Companies

--Commission Seeks to Ensure That Companies Operating in the EU Pay Taxes in the

EU

By Jean Comte

     BRUSSELS (MNI) - The European Commission is set to unveil Thursday a set of

guidelines on how companies in the digital economy should be taxed, according to

a document obtained by Market News International.

     The document presents different legal options to adapt tax rules to digital

companies like Google and Amazon in order to ensure that businesses operating in

the EU pay taxes in the EU.

     Current tax laws, which tax the value of products where they are created,

have been struggling to cope with the digital economy. The subject gained new

momentum last week when it was discussed by EU finance ministers at the EcoFin

council meeting in Tallinn, Estonia.

     "The current tax rules no longer fit the modern context where businesses

rely heavily on hard-to-value intangible assets, data and automation, which

facilitate online trading across borders with no physical presence," according

to the document.

     "As a result, some businesses are present in some countries where they

offer services to consumers and conclude contracts with them, taking full

advantage of the infrastructure and rule of law institutions available while

they are not considered present for tax purposes. This free rider position tilts

the playing field in their favour compared to established businesses," the

document said.

     The document notes that "traditional" companies are subject to an average

tax rate of 20.9% in the EU, while digital businesses are only subject to an

average 8.5% tax rate. "This is an unsustainable situation," the document said.

     As a solution, the Commission is considering introducing amendments to the

proposed common consolidated tax base CCTB), which is a draft directive

currently being studied by the European Parliament and member states. This text

aims at defining a single base for business taxation in the EU, in order to

limit tax optimisation.

     "The CCTB provides an EU framework for revised permanent establishment

rules and for allocating the profit of large multinational groups using the

formula apportionment approach based on assets, labour and sales that should

better reflect where the value is created," according to the document.

     "There is scope within the current CCTB proposal to examine further

enhancements to ensure that it effectively captures digital activities," it

added.

     Amending the CCTB would still be a lengthy and complicated process. The

Commission document therefore highlights "alternative options for shorter-term

solutions." That include an "equalisation tax" on the turnover of digital

companies, a "withholding tax" on digital transactions, or a "levy" on revenues

generated by advertising.

     The equalization tax was backed by 10 EU countries at the last Ecofin

meeting. The group, headed by France, Germany, Spain and Italy, sent a written

request to the Commission, stressing the need to "move ahead quickly at EU

level."

--MNI Paris Bureau; tel: +33 1-42-71-55-41; email: jack.duffy@marketnews.com

[TOPICS: M$E$$$,MX$$$$]