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EU ministers discuss taxing digital giants

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At an informal meeting of ECOFIN last weekend in Estonia, EU ministers discussed the introduction of ‘virtual’ permanent establishments and a withholding tax, or ‘equalisation levy’, on the cross-border activities of large digital businesses with minimal physical presence in a particular jurisdiction.

In a note of the meeting, held to discuss ‘corporate taxation challenges of the digital economy’, the Estonian presidency said that, as things stand, these activities ‘fall into the gaps of international tax rules and remain untaxed in most jurisdictions where the business is digitally present and creating value’. As such, this has now ‘turned into an unequal competitive advantage for the most successful and rapidly growing businesses’.

However, the note warned of the risks from such ‘quick fixes’ as equalisation levies or online advertisement taxes, which could lead to double taxation where, for instance, corporate income tax and an equalization levy were applied to the same transaction.

The preferred option for EU ministers is therefore to pursue a comprehensive approach, building on the current rules. One such proposal would be to deem businesses with a significant digital presence to have a ‘virtual’ permanent establishment in jurisdictions where they operate, even where there is no physical presence, making them liable to corporate tax on value created there.

The Estonian presidency is now looking to reach agreement on a common EU position at the ECOFIN meeting in December, to take forward to the OECD.

Following the meeting, Valdis Dombrovskis, vice-president of the European Commission, said: ‘at EU level, the CCCTB can also help to provide a long-term solution to the issue of taxing digital giants, as it would also address issues such as virtual permanent establishment’. He added that the Commission would also be looking to take more immediate action, and would set out its thinking ‘in a communication before the digital summit on 29 September’.


Issue: 1369
Categories: News