These proposals are expected to consist of a short-term/temporary measure, a turnover equalisation tax – i.e. a tax assessed on turnover rather than profits. However, this shall not be levied on all digital services, but rather ‘only’ on online advertising and on services provided by mediation platforms, i.e. platforms that arrange product deliveries or services between two market participants (e.g. Uber, Airbnb, Amazon Marketplace, etc.).
If proprietary products or services are distributed via the internet, then they shall accordingly not be taxed. According to media reports, it is expected that companies will also only be subject to tax if their multinational consolidated turnover exceeds a total of €750 million ($924 million) per annum Furthermore, an additional threshold may be stipulated with regard to annual turnover from digital services within the EU subject to turnover equalisation tax. By all accounts, this will lie somewhere between €10 million and €20 million. The assessment basis for the tax shall be the gross revenue (before costs have been deducted) on all production and distribution levels (B2B/B2C). Both cross-border transactions (within the EU and with third countries) and domestic transactions shall be included. The tax rate is expected to be approximately 2%. The tax paid may be deducted from the assessment basis for foreign corporation tax as an expense.
The EU Commission would reportedly also like to propose the concept of digital/virtual business premises as part of its plans to introduce a common assessment basis for corporation tax. To this end, the European Parliament’s Economic Committee also decided to pursue such an approach on February 20 2018. Consequently, business premises shall be established if turnover exceeds €5 million per annum in a member state and, regarding the company and the relevant member state, if either:
- more than 1,000 registered users from the state have logged on in a month or visited the site;
- more than 1,000 customers resident in the state have made electronic agreements each month; or
- the volume of the data collected in the state amounts to more than ten per cent of the total data stored by the company.
With regard to the distribution of consolidated profit, the EU Parliament is considering adding a fourth ‘data’ factor to the three factors (turnover, payroll/employees and assets).
Furthermore, the OECD is reportedly working on an interim report which is expected to be published on April 18 2018. A wide range of national states – including Israel and Italy – have already implemented similar proposals or are in the process of reviewing them.
This article was prepared by WTS, the main sponsor of International Tax Review's Indirect Tax Forum, which will be held on March 22 - the day after these proposals are due to be released - in Amsterdam. Follow this link for more details.
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