On 21.3.2018, the Commission presented a European model on the “Fair taxation of the EU’s digital economy”. Intended is a digital corporation tax for transnationally acting corporations, whose number has immensely grown in the past years. Currently, they are bearing less than half of the tax burden of “classic” companies. Hence, the digital tax shall be bound to the place of value-added and no longer to a company’s headquarters.


20 billion emails worldwide are sent daily, 800 million videos are downloaded and 150 million posts shared on social media - and there is no sign that their number will decrease in future. The thriving business model of digital companies is based on this growth. Ten years ago, only one of the 20 largest corporations worldwide was a digital company; today they are nine. The current, outdated tax regimes of the European Member States are not designed for this and still only tax companies with a physical presence. This results in a drastic unequal distribution of the effective tax burden. Whilst “classic” companies have to bear a tax burden of 23.3 % on average, “new” digital companies just part with 9.5 % of their income. Targeted tax avoidance of certain companies and the aggressive tax practices of individual countries aggravate the problem. Hence, an adjustment of the tax models is urgently required. This has also been determined by the just recently published OECD Report, which was discussed by the G20 Meeting of Finance Ministers on 19th and 20th March, 2018 in Buenos Aires. The G20 and 90 further countries agreed than an international consensus concerning digital tax should be developed by 2020 at the latest.


The new Commission proposal on “Fair taxation of the digital economy” from 21st March, 2018 shall remedy this unequal distribution in two steps Europe-wide. In order to stop the already taking place fragmentation of legislations, an immediate interim tax has been provided for as an interim solution in a first step. Later, in a second step, this shall be replaced by an EU-wide harmonised digital corporation tax with focus on the place of performance instead of the company's headquarters.


The interim solution would tax virtual companies, where in case of their value-added, digital users are playing a predominant role. This is the case for example with regard to placing online adverts or passing on user data. The threshold values aim at multinational corporations with 750 million or an EU-wide annual turnover of 50 million Euro. The envisaged tax rate of 3 % on locally syphoned off income would bring the Member States estimated 5 billion Euro per year.


The long-term solution shall later be integrated into the Common Consolidated Corporation Tax Base (CCCTB), which was recently adopted by the EU Parliament, in order to above all avoid double and non-taxation respectively. If the “tax-worthy digital presence” of a company exists in a Member State, the corporation tax would also be due without physical presence in the country of the value-added. In order to assess the “digital presence”, the Commission proposes three criteria: the tax is due if a company generates at least 7 million Euro annual turnover or if it records 100,000 users in a Member State, or if over 3,000 business deals exist with customers.


The political feasibility of the proposal seems currently still to be doubtful. This subject will probably for the first time be discussed at the highest level at this week’s European Council on 22nd and 23rd March 2018 within the framework of the strategy on the common digital market. Ireland that itself very much benefits from digital companies, attracting them with an aggressive tax policy, has rejected the proposal on the day of its presentation. The timing is also slightly unfortunate: the legislative initiative was immediately interpreted as revenge against the US-American punitive tariffs on steel, even though the basics of the digital tax had already been decided at the start of the Estonian presidency in July 2017.


The Chamber of Labour welcomes the legislative initiative of the Commission and regards it a first step to at last come closer to the active and fair taxation of the digital economy. However, there is concern that in the end the digital tax remains stuck in the transition phase. Hence, one would have to immediately go on to a long-term model. AK Europa will therefore organise a discussion under the heading “GAFA-Tax: Empty promise or future of digital taxation in the EU?” on 27th March at 6.30 p.m. in the Permanent Representation of Austria. Panel participants will be Giorgia Maffini (OECD), Evelyn Regner (S&D), Dominik Bernhofer (AK) and Bernardus Zuijdendorp (Commissionn).


Further information:

AK-EUROPA Event: GAFA Tax – Empty promise or future of digital taxation?

AK Policy Paper: Digitalisation und Taxation

AK Policy Paper: Online trading in Austria

OECD: Tax Challenges Arising from Digitalisation – Interim Report 2018