The Council has agreed on EU input to discussions at international level on the taxation of profits in the ‘digital economy’.
The conclusions adopted on 5 December 2017 will also serve as a reference for further work on the subject at EU level, including with a view to Commission legislative proposals expected early in 2018.
Action is necessary because the digital economy is challenging the agreed concepts of international tax rules. Current tax rules were designed for the traditional economy and do not apply to activities that require no physical presence in the country where goods and services are sold.
“With the growth of the digital economy, we need to rethink our tax rules“, said Toomas Tõniste, minister for finance of Estonia, which currently holds the Council presidency. “We need to take international taxation rules into the digital age to ensure fair taxation for both digital and non-digital companies. The EU is today taking a leading role in this.”
In its conclusions, the Council highlights the urgency of agreeing on a policy response at international level. It calls for close cooperation with the OECD and other international partners. The Council suggests that the concept of ‘virtual permanent establishment’ be explored, together with amendments to the rules on transfer pricing and profit attribution.
The OECD is currently analysing business models of the digital economy. It is preparing an interim report to the G20, scheduled for April 2018.
As concerns action at EU level, the Council calls on the Commission to assess thoroughly all options mentioned in the conclusions, including possible temporary measures.