EUROPEAN COMMISSION ON A QUEST TO TAX "VIRTUAL" PERMANENT ESTABLISHMENTS

This is to let you know that on 21 March 2018 the European Commission published proposals for directives regarding taxation of digital businesses. Two proposals have been tabled: the target solution and an interim solution.

The target is to reform the corporation tax law to the extent it relates to digital businesses. The Commission's proposal is that income generated by a digital business should be taxed in the country where its user base is located, even if the business has no physical presence in that country. The Commission proposes to define a new term, i.e. "significant digital presence", which would exist for a foreign undertaking providing digital services if any of the following is true:

  • the revenues from providing digital services to users in a Member State exceed EUR 7 million in a year;
  • the number of users of its digital services in a Member State exceeds 100 000 in a year; or
  • the number of local business contracts for its digital services exceeds 3 000.

The Commission also proposed an interim solution called the Digital Services Tax (DST). DST would apply in particular to revenue from:

  • sale of online advertising space,
  • online intermediation allowing users to find other users and to interact with them, and which may also facilitate the provision of underlying supplies of goods or services directly between users;
  • sale of data generated from users' activities on digital interfaces.

DST is projected to be imposed on undertakings whose annual worldwide revenue reaches EUR 750 million, including at least EUR 50 million generated in EU countries. The proposed rate is 3% and the tax is expected to be collected in the country where the user base is located.

Both legislative proposals are now undergoing the EU consultation process.

If this issue pertains to your business and you are interested in our assistance, please contact your WTS&SAJA consultant or our office.

 

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This Newsletter provides general information and is designed to keep you up-to-date with changes in tax law, tax rulings and interpretations, case law development and interesting commentaries.
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