This note examines some of the factual assumptions and economic arguments presented in the European Commission staff’s ‘‘Commission Staff Working Document — Impact Assessment,’’ issued on March 21, 2018, to accompany two draft directives the EC released relating to taxation of the digital economy.
The proposed directive which has received the most attention would institute a ‘‘digital services tax’’ on gross revenues derived from the provision of certain digital services. The definition of covered services is tailored to target particular types of enterprises which engage in digital interactions with users. This gross-based tax is proposed as an interim measure until such time as a comprehensive solution can be agreed upon and implemented among European Union Member States. The preferred comprehensive solution is presented in a proposed directive to define a new ‘‘significant digital presence’’ permanent establishment based on providing digital services into a state, and profit attribution rules to attribute profit to that PE, regardless of the fact that the enterprise may have no actual personnel or property in the state. The new significant digital presence PE would be incorporated into the ongoing Common Consolidated Corporate Tax Base (CCCTB) discussions.
*This article was first published in Bloomberg Tax Management International Journal.