EU Interim Digital Tax Approaches

By Global Tax Weekly

There’ll be a digital tax by Christmas, proclaimed European Commissioner for Taxation Pierre Moscovici last week. Perhaps he needs to brush up on his history. We’ve heard such bold claims in previous eras. For example, they said that World War One would be all over by Christmas. And it was. Christmas 1918, not Christmas 1914.

Nevertheless, as Christmas 2018 approaches, digital taxation is dominating the international tax agenda. Indeed, it’s somewhat like listening to children excitedly discussing their chances of receiving the next new-fangled toy or gadget in their Christmas stockings this year – every government now seems to want a digital tax! The Spanish Government just added one to its 2019 Budget wish list; the UK isn’t quite sure yet whether it really needs a digital tax, but it certainly would like one; and at the beginning of October, the Australian Government wrote to taxpayers asking very nicely if it could have a digital tax. India on the other hand is in no mood for asking, and it isn’t waiting around for an OECD bearing gifts either. It’s building its own, in the form of proposed new digital permanent establishment rules.

Of course, we’re well aware that the EU really, really wants a digital tax. So much so that it’s prepared to accept an untried and untested temporary prototype just as long as it can get its hands on one.

But not everyone is impressed; there’s always the bah-humbug brigade, the proverbial Christmas scrooges. Enter the party-poopers: Ireland, the Czech Republic, Finland and Sweden. At least, this is according to a report last week by the Irish Times – I don’t wish to cast aspersions. So, what’s their problem? Well, they’re worried that, like a new video game, the digital tax as envisaged won’t be compatible with existing legal operating systems. All manner of things could go wrong as a result. Tax treaties will be broken, international obligations flouted, companies doubly taxed; stuff that cannot be fixed merely by switching it off and switching it on again.

They’ve got a point. Companies don’t tend to rush out their latest innovations. They’re tested thoroughly before being unleashed on the market. Therefore, perhaps Moscovici needs to take their reservations about the interim digital tax in particular more seriously.

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