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BackThe event hosted by AK and ÖGB Europa offered the opportunity on 27th March to dis-cuss how to rate the new foray by the European Commission into the digital tax. Milena Mathé, European Commission (Tax Analysist at DG TAXUD) and Giorgia Maffini, OECD (Deputy Head of International Tax Unit) presented solutions as outlined by two of the most important forums in international tax issues. Also participating in the panel discus-sion were Evelyn Regner, MEP, and Dominik Bernhofer, Head of Tax Policy Unit of the AK. In view of the both technical and politically highly complex situation everybody agreed: the time has come for big solutions.
At the start of the discussion, Giorgia Maffini, Deputy Head of Business and International Tax Unit, OECD, explained the initial position in a global context: even though in the meantime, there had been strong public awareness regarding the problems of taxing digital companies, one could hardly find any simple answer with regard to international tax policy - neither of a technical nor of a political nature. However, the OECD received support at the G20 Meeting of Finance Ministers on 19./20.03.2018 in Buenos Aires. At the suggestion of the G20, 110 countries decided to agree on a joint approach by 2020 at the latest. Maffini presented the key results of the report “Tax Challenges Arising from Digitalisation 2018”. It points out that an erosion of the tax basis in OECD countries can be clearly observed: national jurisdictional boundaries are increasingly easy to overcome. There are difficulties with allocating immaterial services, and the lack of a value added tax makes taxing the new, digital companies without physical presence more difficult.
Next, Milena Mathé, (Analysist for Tax Fairness, European Commission, DG TAXUD) presented the Commission´s proposal on “Fair Taxation of Digital Economy”, which was published on 21.03.2018. Its objective is to stop the fragmentation of the Digital Single Market as soon as possible and to remove the considerable market imbalances. On average, digital companies bear a tax burden of just 9.5 %, whilst “classic” companies pay 23.2 %. The Commission plans an approach in two stages: first and during a transitional period, 250 digital major multinational corporations with an annual turnover of more than 750 million Euro shall pay corporation interim tax on their digital value added. Based on a tax rate of 3 % EU-wide, this would yield circa 5 billion Euro additional income every year. In a second step, it has been planned to realise the concept of the taxable “virtual permanent establishment” of companies on a more long-term basis: as long as a “taxable digital presence” can be determined, corporation tax will be due in the country of destination, regardless of where the seat of the company is located geographically.
Evelyn Regner, MEP, S&D, Member of the TAXE and PANA Inquiry Committees and for many years involved in tax issues in the European Parliament, said that the majority in Parliament would strongly support the digital tax. In this context, she also praised the work of the Commission. However, according to Regner, the highly complex tax issue would need a holistic approach. The merger with the Common Consolidated Corporate Tax Base (CCCTB), which had been under discussion for quite some time now, would be particularly important. She was confident, that countries such as Ireland or Luxembourg, which in respect of tax issues often threatened to veto in the Council, would come to their senses and support the CCCTB: “The tax basis would slip through countries' fingers.” In the end it would be important that everyone - from civil society to classic companies - would pull together.
In view of the digitalisation, Dominik Bernhofer, Head of Tax Policy Unit of the Austrian Chamber of Labour (AK), also supported a holistic perspective: “Digitalisation is taking place at the centre of society.” He was generally pleased with the Commission proposal, but criticised some obvious weaknesses. The interim tax, which was intended as a transitional solution, might have the effect that the far more target-oriented proposal - the introduction of the concept of the taxable digital presence - might be seriously delayed. Apart from that, the proposal would aim at taxing turnover, but not profit. As a result, companies with high profit margins would thus continue to have an unfair tax advantage. In addition, in case of taxing turnover, it would be far easier to directly pass on the tax to the consumer. Hence, in the AK’s opinion, adopting the actual digital tax should happen as soon as possible. In addition, the digital tax should be merged with the bill on the Common Consolidated Corporate Tax Base (CCCTB) to achieve the broadest effect possible. However, without a swift solution, one could act within the framework of Enhanced EU Cooperation or on a national scheme to further increase public pressure.
Further information
OECD PowerPoint Slides on the international tax system
PowerPoint Slides of the Commission (DG TAXUD) on the proposed digital tax
AK Newsletter: Commission proposes measures on taxing the digital economy
AK Policy Paper: Digitalisation and Taxation