EU calls for a rethink on digital taxation

The EU is calling for a review of the global approach to digital taxation and a rethink on cross-broder tax rules in the era of the digital economy, particularly the use of transfer pricing rules, according to the economic and financial affairs council (ECOFIN)

It has issued a paper setting out its response to the OECD's plans for digital tax reform and although it see value in EU alignment with the wider BEPS approach it would takes the view that an appropriate nexus in the form of a virtual permanent establishment, together with any necessary corresponding amendments to the rules of transfer pricing and profit attribution, which would take into account where value is created in the different business models of the digital economy, should be explored.

The ECOFIN meeting of finance ministers issued a statement affirming a commitment to the OECD’s work in its base erosion and profit shifting (BEPS) project but saying more needed to be done ‘to address the remaining challenge to ensure that international tax rules are suitable for both the digital and more traditional sectors of the economy, which goes beyond tax avoidance and evasion’.

The statement said there was an ‘urgency to safeguard the level playing field as well as to ensure that digital economy businesses pay their fair share of taxes in the right jurisdiction, so that all businesses have equal conditions for growing and developing’.

It calls for close cooperation with the OECD and other international partners, and suggested the concept of 'virtual permanent establishment' be explored, together with amendments to the rules on transfer pricing and profit attribution.

‘With the growth of the digital economy, we need to rethink our tax rules. We need to take international taxation rules into the digital age to ensure fair taxation for both digital and non-digital companies. The EU is today taking a leading role in this,’ said Toomas Tõniste, minister for finance of Estonia, which currently holds the presidency of ECOFIN.

ECOFIN Responding to the challenges of taxation of profits of the digital economy is here.

Report by Pat Sweet

‘With the growth of the digital economy, we need to rethink our tax rules. We need to take international taxation rules into the digital age to ensure fair taxation for both digital and non-digital companies. The EU is today taking a leading role in this,’ said Toomas Tõniste, minister for finance of Estonia, which currently holds the presidency of ECOFIN.

 
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