EU member countries are unlikely to unanimously adopt the 3% digital services tax.
Several countries, including the UK, Ireland and Denmark, say new plans to specifically tax EU-based digital service providers ahead of the EU's introduction of its full digital tax strategy could create a double-taxation risk. During an April 28, 2018 meeting between EU finance ministers on the issue, several countries said they prefer global-level consensus before establishing any new digital services tax.
Entities that could be effected by these new rules should closely monitor these developments, despite the fact that global consensus may be a lengthy process. It is unclear how much lead time businesses would be given to redesign systems for capturing the information required by a digital services tax-it is unlikely that most entities would have such information readily available.
The EU's digital services tax is a proposed interim tax that would apply to revenue generated from online services such as online advertising-space sales, online marketplace creation, and transmitting collected user data. This tax is intended to be part of an overall EU digital tax strategy and would only apply to entities that, among other conditions, generate over €50 million in revenue annually in the EU from providing digital services. The interim tax is supposed to apply as of January 1, 2020.
Digital service tax issues
It's unclear whether the proposed digital services tax would be a direct or indirect tax, since it will only apply to revenue generated from certain activities (i.e., from providing digital services). If it is considered a VAT, the tax may violate EU rules.
Also, while supporting EU countries say swift action is necessary to ensure digital businesses pay their fair share of tax, other countries that rely on foreign direct investment may be concerned adopting a regional digital services tax could adversely affect their competitiveness and attractiveness for businesses.
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Information is current to May 29, 2018. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour 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 upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500