Taxing the digital economy: EU system may be global template

Tue Mar 4, 2014

Taxing the digital economy is a priority for tax jurisdictions across the globe but the EU’s attempt may well become the global template. These new rules covering the supply of digital services in the EU come into effect on January 1, 2015.

EU Commission image

The expert group on the taxation of the digital economy is up and running. Image from EU Commission website.

This statement was just one of the nuggets mined from a January 2014 meeting of the EU expert group on the taxation of the digital economy. This was the group’s third meeting since formed by the then Commissioner Semeta in October 2013.

Taxing the digital economy

Vitor Gaspar, chairman of the expert group.

The group was chaired by Vítor Gaspar, the former finance minister of Portugal. It included among its members:

  • Mr Pierre Collin from the French Conseil d’Etat

  • Mr Michael Devereux from Oxford University Centre for Business Taxation,

  • Mr Jim Hagemann Snabe, Co-CEO of SAP AG

  • Ms Tea Varrak from Innovation and Business Centre Mektory in Estonia

  • Ms Mary Walsh, non-executive director and consultant in Ireland

  • Mr Björn Westberg from Jönköping International Business School in Sweden

The group’s task was to identify improvements in the current way of taxing the digital economy in the EU, and present a range of possible solutions.

In the summary of their December 2013 meeting, available here, the group aimed to deal with two questions:

  1. How to apply existing tax systems to a new, evolving and increasingly digital economy?

  2. How to design a stable and robust tax system in face of the economic transformation associated with the increasing relevance of digital technology?

Taxing the digital economy solutions

The group also noted an interest to address practical VAT issues for SMEs – to this end they saw the soon-to-be introduced mini one stop shop (MOSS) as a possible solution to VAT issues on a global scale.

In January 2014 the group deliberated on a presentation by Simon Hampton, formerly of Google, who focused the business models created by search engines.

Further digitalisation will transform many traditional ways of doing business. More on Simon’s outlook here. The group also discussed the implications of these developments for the current international system in determining liability for corporate income tax.

The expert group also took stock of simultaneous work on the same topic by the OECD Taskforce on the Digital Economy (click here for its most recent report).

Again the group was interested in the VAT Directive due to come into effect on January 1, 2015, in the EU. They agreed that it could potentially be extended and could serve as a standard for indirect tax systems outside the EU.

When setting up this expert group back in October 2013, the then Commissioner Semeta said that:

The challenges linked to taxing the digital economy are immense and there are no ready-made answers. Therefore, we need deep, informed and focused reflection on this issue within the EU, to ensure that the next steps we take are the right ones.”

This expert group is intended to be the Commission’s guide on that path to taxing the digital economy.

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