EU Contemplates Digital Economy Taxation

By Global Tax Weekly

Maybe it’s because we now live in increasingly fast-paced, on-demand economies, but there seems to be a growing sense of impatience at the pace – or lack thereof – of the OECD’s work on some crucial areas of the BEPS project – notably around the taxation of the digital economy.

That the European Union went charging into this matter like the proverbial bull in a china shop can be put down to its usual enthusiasm for fixing international tax problems. But even the saintly United Nations now can’t wait any longer, having decided to press ahead with its own work on digital taxation. When the UN can bear the OECD’s procrastination no more, you know the game’s up. The patience of saints is only finite, it transpires.

The official line of most governments is that it is preferable to work in conjunction with the OECD on this matter, rather than in competition with it, and to await the digital tax recommendations that will emerge in a couple of years’ time. Yet, even though many countries have condemned the EU’s rush to legislate, including some EU member states, it’s equally apparent that the same jurisdictions are looking to hedge their digital tax bets.

Last week, for example, Norway’s parliament rejected a proposal that the Government examine its digital tax options, resolving that Norway should stay the multilateral course. Nevertheless, at the same time, the parliamentary resolution also urged the Government to assess the suitability of temporary taxes on digital companies and evaluate the possible consequences of introducing a tax on digital companies similar to that proposed by the European Commission in March. All of which seems a little confusing, not to mention unhelpful, given that unilateral forces are thought the biggest threat to the success of the BEPS project.

Governments and tax authorities are already taking steps to bring certain digital business models, notably online platforms providing accommodation and transport services, into the tax net, irrespective of whether those have a physical presence or not. For instance, earlier this month, Denmark announced a landmark tax reporting agreement with Airbnb. Other jurisdictions are considering digital nexus rules, like Canada, or have already introduced them, such as Slovakia, where there is now an obligation for companies providing transport and accommodation services to Slovak residents via digital platforms to register a permanent establishment in the country, if they render their services there repeatedly.

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