European Commission proposes new rules for digital taxation

The European Commission has presented a short-term and a long-term proposals for digital tax reform. The long-term proposal aims to adjust corporate tax rules so that profits are taxed where companies interact with users, i.e. in member states where businesses have a taxable ‘digital presence’ or ‘virtual permanent establishment’. As a short-term solution, the commission proposes a 3% interim tax on revenue from digital activities, including revenues from online advertising, from intermediary activities – such as Airbnb and Uber – and from the sale of user data. The proposals will be submitted for consultation by the European Parliament and for adoption by the European Council, where there is widespread disagreement among member states on the changes that have been proposed. According to some, if implemented, the tax reforms could result in friction between the EU and the United States. Germany – which has so far been a strong proponent of the reforms – has voiced concerns about the possibility of growing tensions with the USA. Earlier this month, the OECD published a report, warning against ‘economic distortions’ that could be created as a result of the EU proposals.