Proposals on rules to tax digital businesses | KPMG | UK

The European commission has today published its proposals on new rules to tax digital businesses

Proposals on rules to tax digital businesses

The Proposals comprise two legislative initiatives.

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The European commission has today published its proposals on new rules to tax digital businesses, Illustration of computer with European flag

Firstly, as previously trailed, the Commission is proposing an interim measure in the form of a tax on revenues (levied at a rate of 3%). 

The new tax would apply to digital businesses whose revenues are significantly driven by user participation. These will include revenues derived from selling online advertising space, digital intermediary activities, and revenues generated from selling user-derived data.  

The Commission proposes that the new tax would be collected by the member state where the users are located, and would only apply to companies with annual worldwide revenues of at least €750 million, and EU revenues of at least €50 million.

The second proposed measure is a longer term objective that involves reforming the taxation of the digital economy more broadly.  

Under this second legislative initiative, the Commission recommends the introduction of a common system for taxing digital activities in the EU, which would be based on profits (rather than revenues). The common system would be based around a set of rules that create a taxable digital presence in the EU (very broadly, this would be triggered if a business has more than €7 million of annual revenues in a member state, more than 100,000 users in a member state, or over 3000 annual business contracts for digital services).  

The common system will also include new rules addressing the allocation of profits for digital businesses, and the Commission proposal indicates a desire to integrate this initiative into the CCCTB. 

Affected businesses should be familiarising themselves with these proposals as a matter of urgency, and watching the developments in this space closely – the next step is for the legislative proposals to be submitted to the European Council for adoption. 

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