Amid speculation that the chancellor is about to introduce a new sales tax on multinational companies in the forthcoming Budget, the CIOT is firmly of the view that the risks of pursuing unilateral measures ahead of an international solution outweigh the potential benefits and ‘could be counter-productive to further discussions on a long-term model’. The EU Parliament’s ECON committee has also called on MEPs to reject the proposal for an EU digital services tax.
The CIOT sees existing principles of international tax as the best way to tax global profits, namely, taxing a multinational groups’ profits where they undertake value-generating activities, rather than where they make sales. The problem is to adapt the current system to be able accurately to capture the wealth created by users of a digital platform where such users are crucial to the business model of the platform operator. The CIOT continues to believe this requires an internationally-agreed sustainable solution for the long term.
Glyn Fullelove, chair of CIOT’s technical committee, said: ‘Work towards a multilateral solution continues, and this is likely to take at least another year or two’.
For the CIOT, the risks of unilateral action include:
‘We would caution against introducing an unsatisfactory tax in an understandable attempt to meet the concerns of politicians and the public at large, Glyn Fullelove commented.
The EU Parliament economic and monetary affairs (ECON) committee has published amendments to its draft report issued in September, recommending that MEPs reject the Commission’s EU digital services tax proposal. The Commission proposal involved an ‘interim’ digital services tax (DST) at a rate of 3% on revenues, targeting companies with annual worldwide revenues above €750m (and EU revenues of €50m).
The ECON committee comments that the DST would introduce ‘a completely new logic of taxation’, based on turnovers instead of value adding, profits or wages. The committee believes the move would ‘undermine the tax bases of smaller member states to benefit the bigger, hinder the development of digital start-ups in Europe, intensify the trade conflict between the EU and the US and lay the ground for international tax rules where China and India will be the main beneficiaries’.
Referring to numerous digital companies becoming world leaders ‘before they were able to show profit’, the committee comments that ‘in Europe, they will be taxed for profits long before they have profits. That will prevent the development of the digital economy in Europe’.
In the interests of protecting small companies and start-ups, the proposed amendments include lowering the threshold for the 3% rate of DST to €25m, with a rate of 5% applied to revenues above €100m. In addition, to avoid a cliff-edge effect, the amendments propose an annual tax allowance of €750,000 for every company in scope of the tax.
The committee also recommends ensuring that if taxable revenues are already subject to corporate tax in a member state, they should not be additionally subject to DST in that member state. The commentary says that: ‘DST should only be collected in those member states where no taxable presence has been established by a digital company and the invoicing and taxing of digital services generated by serving users in those member states is taking place elsewhere’.
The committee believes this would give digital businesses a strong incentive to declare their taxable presence in each country where they operate in order to minimise DST.
The ECON committee’s proposed sunset clause specifies that the DST should expire on 1 January 2025, with a requirement for the Commission to submit a progress report at least 24 months before that date.
Alternatively, if an international solution to digital taxation is agreed at OECD level before that date, the DST should be repealed on the earlier of:
The ECON committee has also called on MEPs to reject the Commission’s proposal for taxing ‘significant digital presence’ (see https://bit.ly/2Se5HL8). Instead, the committee recommends introducing a new proposal based on work underway at the OECD on a global definition of a ‘digital presence’. The OECD is hoping to present suggestions on digital taxation to the G20 Finance Ministers meeting in Japan in June 2019.
Amid speculation that the chancellor is about to introduce a new sales tax on multinational companies in the forthcoming Budget, the CIOT is firmly of the view that the risks of pursuing unilateral measures ahead of an international solution outweigh the potential benefits and ‘could be counter-productive to further discussions on a long-term model’. The EU Parliament’s ECON committee has also called on MEPs to reject the proposal for an EU digital services tax.
The CIOT sees existing principles of international tax as the best way to tax global profits, namely, taxing a multinational groups’ profits where they undertake value-generating activities, rather than where they make sales. The problem is to adapt the current system to be able accurately to capture the wealth created by users of a digital platform where such users are crucial to the business model of the platform operator. The CIOT continues to believe this requires an internationally-agreed sustainable solution for the long term.
Glyn Fullelove, chair of CIOT’s technical committee, said: ‘Work towards a multilateral solution continues, and this is likely to take at least another year or two’.
For the CIOT, the risks of unilateral action include:
‘We would caution against introducing an unsatisfactory tax in an understandable attempt to meet the concerns of politicians and the public at large, Glyn Fullelove commented.
The EU Parliament economic and monetary affairs (ECON) committee has published amendments to its draft report issued in September, recommending that MEPs reject the Commission’s EU digital services tax proposal. The Commission proposal involved an ‘interim’ digital services tax (DST) at a rate of 3% on revenues, targeting companies with annual worldwide revenues above €750m (and EU revenues of €50m).
The ECON committee comments that the DST would introduce ‘a completely new logic of taxation’, based on turnovers instead of value adding, profits or wages. The committee believes the move would ‘undermine the tax bases of smaller member states to benefit the bigger, hinder the development of digital start-ups in Europe, intensify the trade conflict between the EU and the US and lay the ground for international tax rules where China and India will be the main beneficiaries’.
Referring to numerous digital companies becoming world leaders ‘before they were able to show profit’, the committee comments that ‘in Europe, they will be taxed for profits long before they have profits. That will prevent the development of the digital economy in Europe’.
In the interests of protecting small companies and start-ups, the proposed amendments include lowering the threshold for the 3% rate of DST to €25m, with a rate of 5% applied to revenues above €100m. In addition, to avoid a cliff-edge effect, the amendments propose an annual tax allowance of €750,000 for every company in scope of the tax.
The committee also recommends ensuring that if taxable revenues are already subject to corporate tax in a member state, they should not be additionally subject to DST in that member state. The commentary says that: ‘DST should only be collected in those member states where no taxable presence has been established by a digital company and the invoicing and taxing of digital services generated by serving users in those member states is taking place elsewhere’.
The committee believes this would give digital businesses a strong incentive to declare their taxable presence in each country where they operate in order to minimise DST.
The ECON committee’s proposed sunset clause specifies that the DST should expire on 1 January 2025, with a requirement for the Commission to submit a progress report at least 24 months before that date.
Alternatively, if an international solution to digital taxation is agreed at OECD level before that date, the DST should be repealed on the earlier of:
The ECON committee has also called on MEPs to reject the Commission’s proposal for taxing ‘significant digital presence’ (see https://bit.ly/2Se5HL8). Instead, the committee recommends introducing a new proposal based on work underway at the OECD on a global definition of a ‘digital presence’. The OECD is hoping to present suggestions on digital taxation to the G20 Finance Ministers meeting in Japan in June 2019.
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