The European Commission today released a communication on a “fair and efficient tax system” in the European Union for a single digital market. The communication was released following an informal meeting of the Economic and Financial Affairs Council (Ecofin) of the EU.
The communication presents critical challenges in taxing businesses that provide services digitally and proposes both long-term—a fundamental reform of the international corporate tax framework—and sort-term solutions such as:
The EC today presented to the Council and the European Parliament its communication on a fair and efficient tax system in the European Union for the single digital market. The EC outlined the challenges that policymakers face in determining that the digital economy is taxed fairly, and noted two main challenges to be addressed so that profits are taxed where value is created:
The EC communication concludes that EU Member States need to address these challenges in a coordinated manner to safeguard fair competition within the EU single market and proposed both long-term and short-term solutions. In the long-term, the EC recommended that international tax rules be amended to embed the taxation of the digital economy in the general international corporate tax framework and to update indicators of a significant economic presence in line with the new digitized business model (e.g., an updated definition of the permanent establishment).
One challenge that would need to be addressed in this context is the attribution of profits generated by digital businesses by identifying and valuing intangible assets and establishing their contribution to value creation. Alternative approaches to traditional transfer pricing methods would be required—together with specific anti-abuse rules—in order to prevent the shifting of profits outside the country where value is created. At the EU level, the EC mentioned the possibility of amending the common consolidated corporate tax base (CCCTB) proposal to capture digital activities.
Read a September 2017 report prepared by KPMG’s EU Tax Centre
© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.