The European Commission plans to develop a Single Digital Market through the implementation of fairer and more balanced taxes for online companies
The issue of taxes paid by digital companies in the European Union is an issue that leads to many conflicts. From Brussels, the tricks carried out by certain online companies to avoid paying taxes or at least the minimum of them are questioned. For its part, the online sector criticizes any reform that is imposed as an impediment to the development of eCommerce. The community authorities have tried from different perspectives the unification of certain financial criteria to guarantee that all companies fulfill their obligations.
The European Commission proposes the solution of unifying digital taxation through a public consultation by vote that remained open until January 3. With this, he sought to know the opinion of companies, institutions, and citizens through a “fairer” formula to start developing a Digital Single Market through more effective and balanced taxes. This initiative, promoted by Germany, France, Italy, and Spain, sought for digital companies to bear a tax burden similar to that of other sectors and comparable to that of any country of the 27.
In this way, fines Apple and Amazon for using Ireland and Luxembourg as their headquarters and thus avoid paying taxes or sanctioning countries with lower rates, and unfair competition between community countries is avoided. The evolution of the Internet, the payment platforms, and the change in shopping habits have meant that millions of users around the world buy online with total security and confidence, which is why companies like Google, Facebook, eBay, or Amazon do not need to have a physical store to carry out their business, so they transfer all taxation to the country where their headquarters are located.
Proposal for a harmonized volume tax
A few months ago, the Finance Ministers of countries such as Germany, France, Italy, and Spain sent a letter to the President of the Eurogroup asking him to assess the possibility of establishing a harmonized tax on the turnover generated in Europe by digital companies. This would distribute the taxation that comes from the new digital economy that has been using tax practices identified by the authorities as fiscally aggressive for some time. This type of harmonized tax is not trivial since it would have to establish very clearly which companies affected within the digital sector will solve the overlap with other types of taxes such as VAT.
Some countries already have specific taxes on technologies, the so-called “Google tax”, as is the case in the United Kingdom, France, and Australia. Therefore, it would be necessary to see how the proposal of the Finance Ministers evolves, and more so after the example that occurs in other European tax projects for certain sectors, such as the famous “Tobin tax” on deposits and financial transactions, the configuration of which is still being processed since more than 10 years ago.
Abusive practices of large companies
Due to this type of abusive practices by multinationals, this issue has become a priority both for the European Union and for the organization that brings together the richest countries in the world, OECD, which has applied Action number 1 of its BEPS ( Base Erosion and Profit Shifting ) Action Plan to face the fiscal challenges posed by the digital economy. In short, that income is taxed wherever the economic activities that generate that income are carried out and that is where the added value is created.
Until the tax comes into force
The Spanish Administration intends, following the line of the OECD, to advocate for the expansion of the definition of permanent establishments based on new economic factors. A kind of digital PE in which there is income from the source state derived from digital transactions through a digital platform or email, a certain digital presence, and an adaptation to the language of the source country and the users. This would also not be exempt from problems such as locating the domicile of technology multinationals in the territories or capturing data that proves the transactions. This would lead to investment in IT infrastructure and many companies are not willing to do so.
Promote the competitiveness of SMEs and large companies
In this sense, a fairer and more immediate distribution of taxation would be achieved because the income that is taxed where the economic activities that generate this income are carried out, as we mentioned, would also avoid legal battles with taxpayers, providing the system with greater legal certainty for a prosperous development of the activities of technological multinationals in countries that wish to attract them.
This proposal tries to prevent digital service companies from using the different levels of taxes in the communist countries to pay taxes where it is most convenient for them instead of where their profits are generated, as would be fairest. This measure is aimed at all types of online businesses, for example, marketplaces such as Amazon or eBay, content providers such as Netflix, or rental platforms such as Airbnb.
Because this initiative has not been sufficiently supported, Brussels will analyze the results of the public consultation to define its fiscal reform that will improve the competitiveness of the European Union. In principle, this should be announced within the first quarter of 2018 and would serve to establish a consolidated corporate tax that has been under negotiation for 6 years.
As soon as it is announced, it will be possible to know the scope of this reform and the impact it will have on SMEs and companies in the EU that market beyond national borders. One of the doubts of the Commission’s consultation raises whether it is convenient to have a digital tax exemption for small businesses and thus favor competition with large online multinationals, being able to balance the fiscal balance.
