On March 16, 2018, the OECD published an interim report addressing the tax challenges of the digital economy. This report, which, for the moment, highlights the absence of true international agreement on the matter, lays the groundwork for moving towards a consensus-based solution by 2020. In the meantime, the report cites the drawbacks of taking more immediate action (taxes on certain digital activities) and argues that any such measures should only be applied to a limited number of businesses.
The European Union, however, has come out more strongly in favor of taking immediate action. Tomorrow, the EU is expected to publish its proposals on the taxation of the digital economy. According to information released in recent weeks, these proposals could include a directive implementing the concept of a “digital permanent establishment” (Digital PE) and rules for allocating profits on digital services rendered between Member States, as well as between a Member State and a non-tax treaty country. Moreover, until a consensus is reached about including the concept of the Digital PE in the existing treaties with other third countries, a transitory tax on revenues derived from certain digital activities will be adopted immediately.
In principle, this would be an indirect tax applied on gross revenue (before any expense deductions) generated on activities aimed at creating value based on users data and, in particular, online advertising, digital marketplaces and digital platforms that connect supply and demand. The tax would be limited to companies or groups with annual global revenue above €750 million and whose revenue from the provision of digital services in the EU exceed somewhere between €10 million and €20 million, to be defined. There will be a single rate across the EU in the region of 1-5%.