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Taxing the Internet: The European Challenge
Conférencier: Marco Greggi, professor, Department of Law, University of Ferrara, Italy
10 juillet 2019, de 12h à 14h, Local L1 – 3620.
Campus Longueuil de l’Université de Sherbrooke 150, place Charles-LeMoyne
Digital Economy (and Digital Taxation) have always been a kind bête noire for European policy makers and legislators. European states have always been runner-ups in the challenge with the US and, more recently, with China : data clearly shows that the old continent is a net importer (no country excluded) of both digital services and equipment used to deliver them. The situation is aggravated by the fact that, according to the classical international taxing rules, most of the profits generated by Multinational enterprises (MNEs) active in the sector are taxed elsewhere (not in the EU).
This scenario was considered inacceptable by most of the European states, as it was allegedly inconsistent with the latest development in the field of Base Erosion and Profit Shifting agenda by the OECD (which addressed the situation in the framework of the Action 1 of the Project). It also triggered a number of unilateral reactions by countries, including an aggressive approach by the Tax Administrations (such as in France and Italy) and some remarkable changes to the domestic legislation (such as the British Diverted Profits Tax or the Italian Digital Tax).
While States scrambled in the attempt to protect their respective domestic taxable bases, the European Commission (and Commissioner Mr. Moscovici in particular) started to work on a more comprehensive, two-pronged solution.
The European approach was manifested earlier in 2018 with two directive proposals, aimed respectively at adjusting the notion of Permanent establishment as to tackle the new ways of doing business (as to recover the symmetry between the place where value is created and the location where the business should be liable to tax) and to introduce a brand-new digital tax inspired by the same ratio.
The Policy cornerstone of the proposal consists in the fact that taxation should occur where value is created. In the case of selected business models currently practiced on the Net (the reference is mostly to social network and other user-generated content services) value is actually created by users / consumers of the service. According to this basic assumption the presence of a remarkable pool of consumers (of the service) in a state should grant the latter country to levy a tax on the value created by the MNE, irrespective of the classical link rules allowing taxes to be charged.
The two directive proposals have been discussed during following EcoFin meetings (in 2019) and eventually postponed to 2020. This was mostly because of the harsh reaction by the US, where most of the MNEs are operated from. This interim solution, unsatisfactory as it is, kept the status quo, with countries that proceeded alone (such as Italy), and others waiting for a more comprehensive approach like Germany (allegedly afraid of a possible retaliation of the US on other domestic commodities). Yet all the decision taken on a local scale (by EU member states) are either explicitly or implicitly inspired by the Commission’s work on the Digital agenda, and it more than likely that the new Commission which will be appointed later this year shall proceed from where Commissioner Moscovici ended his work.