Significant digital presence and digital services to be taxed

significant digital presence
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The European Parliament has adopted proposals for a digital services tax and corporate taxation of a significant digital presence.

Corporate taxation of a significant digital presence, first proposed in March 2018, is geared towards reforming corporate tax rules to that the profits of businesses which interact with their customers through digital channels can be registered and taxed. The digital services tax, meanwhile, is an interim initiative to extract tax revenue from companies which are not currently taxed for their digital activities.

Dariusz Rosati, rapporteur on the Significant Digital Presence, said: “Taxes have to be paid where a company creates its value – irrespective of if it is a digital or a traditional enterprise. The quarrels and mutual vetoes in the Council lead to the EU being unable to tackle this problem. The European Union should be a trendsetter, while also continuing to work on an international solution at OECD level. It is high time to act.”

While the rules governing taxation of a significant digital presence are permanent, the digital services tax is intended only to fill a gap in taxation rules until a more permanent solution can be agreed upon. The definition of digital services which qualify as taxable revenues under the temporary digital services tax has expanded under the new rules to include content supplied online through a digital interface such as laptops, phones or tablets; irrespective of whether the entity supplying the content acquired the rights from a third party. This means online platforms providing digital content, such as Netflix or Amazon Prime, can be taxed as digital services.

Digital Services Tax rapporteur Paul Tang said: “Both the European Parliament and the European people want tech giants to pay their taxes. That is why we voted for a more ambitious digital service tax, also taxing revenues from online streaming services [and the significant digital presence]. We are talking about basic fairness, where everyone pays their fair share.”

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