Digital Services Tax: State of Play

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The negotiations within the Organisation for Economic Co-operation and Development (OECD) for a global solution for the taxation of the digital economy have been through some tumultuous developments in the past few weeks, threatening to prevent the 137 participating countries from reaching an agreement by the end of 2020. Despite the significant progress being made on the so-called OECD’s “pillar one”, determining how multinationals’ profits are allocated among countries where they do business, the recent opposition from the United States makes reaching a global solution less likely. The OECD’s second pillar sets a global minimum corporate tax rate to stop countries lowering corporate tax rates in an attempt to shift company headquarters to their jurisdictions and enjoys the support of the United States. However, an agreement cannot be achieved without committing to both pillars. OECD officials stated that there was a public consultation envisioned sometime during the summer and a meeting of country representatives for the first time after the pandemic in October 2020. Despite the US announcement on 12 June to pause its participation in the OECD negotiations, the OECD plans to maintain its schedule of meetings.

US – EU tensions

In 2019, after France adopted a national digital services tax, the US government launched an investigation into the French DST and concluded that it unfairly discriminated against the US. The two countries reached an agreement and sanctions were not imposed pending the OECD negotiations. Yet, on 2 June, the US launched a series of trade investigations potentially leading to tariffs on countries in Europe, Asia and South America if they adopt digital services taxes. That decision prompted French Finance Minister Bruno Le Maire to state at a hearing at the French Senate that the United States was the only country blocking a deal on international taxation of digital giants, claiming that all other states supported the OECD proposal.

On 12 June, United States’ Treasury Secretary Steven Mnuchin sent a letter announcing the US will no longer be part of the negotiations, suggesting a pause in the OECD talks on international taxation while governments around the world focus on responding to the COVID-19 pandemic and safely reopening their economies. This decision marks the latest escalation of the tension between the US and the EU regarding the imposition of a global digital tax. After Washington confirmed that it had pulled out of the OECD talks, officials including Bruno Le Maire and the European Economy Commissioner Paolo Gentiloni, expressed their support for national or EU-wide digital levies – plans that would likely lead to retaliation from the US. The Commission said it would revive plans for an EU-wide digital tax if the OECD level negotiations become thwarted by the US’s withdrawal. However, an EU-wide digital tax also appears to be difficult due to the opposition of Ireland and the Nordic Member States. For now, Angel Gurría, the OECD’s secretary-general, urged countries to remain at the negotiating table with the aim of reaching a global digital tax deal by the end of 2020. On 22 June, Bruno Le Maire and his German counterpart Olaf Scholz stated that France and Germany remain committed to reaching an OECD-level agreement on digital taxation and minimum corporate tax by the end of the year.

Digital Services Tax across EU Member States

A group of EU Member States (France, Italy, Austria, Spain, Czech Republic, Belgium) and the UK have adopted or are in the process of adopting national digital services taxes (between 2% and 5%) applying to revenues from the provision of “digital services” such as online intermediation, online advertising, sale of users’ data, etc. Each country’s DST has its own parameters.

Ecommerce Europe’s perspective on the taxation of the fast-digitalizing economy

Ecommerce Europe believes that only a multilateral, global solution at OECD level will be able to fully solve the taxation challenges created by the fast-digitalizing economy, and successfully reduce the risk of double taxation and international trade distortions, or even retaliation measures from non-EU countries, as we have seen in the dispute between France and the US. Furthermore, in the context of the discussions around the international tax reform, Ecommerce Europe would like to reiterate that taxes should be based on profits, not on revenues. New tax rules should also be simple, easy to administer and provide legal certainty. Finally, they should be globally and easily enforceable, in order to avoid putting non-EU companies in a competitive and unfair advantage vis-à-vis EU businesses. This means that all players should face real consequences for non-compliance or fraud.

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