ECOFIN Fails to Reach Agreement on EU Digital Services, France and German Propose New Bill

; posted on
December 6th, 2018

Despite hopes that agreement could be reached on the EU's proposed digital services tax (DST) before the end of the year, a compromise proposal that was put forward during the 4 December meeting of the Economic and Financial Affairs Council, did not gain the necessary support and was not discussed in detail. Amidst the failure in reaching the agreement on DST, France and German proposed new stripped-down version of digital services tax.

EU Member State divided on DST proposal

On 29 November 2018, the Austrian Presidency put forward a compromise text proposal containing the elements that they believe have the most support from the Member States. This proposal enacted as follow up to the initial DST proposal was made in March 2018. In particular, the proposal contains the following key elements:

  • The rate is set at 3% and will apply to the proportion of taxable revenues allocable to each Member State. The DST can be deductible against the corporate tax base.
  • The DST will apply to taxable revenues from targeted advertising on a digital interface (where the entity placing advertising does not own the digital interface, it is the advertising entity which is considered to have the DST revenue, not the owner of the site); the making available of multi-sided digital interfaces (i.e., intermediation services where there is interaction between users) and; the sale of user data collected about users and generated from users’ activities on digital interfaces.
  • The compromise proposal includes exemptions for the sale of data from sensors, the supply of payment services and the supply of regulated financial services by regulated financial entities. Provision of non-regulated services by regulated entities may fall within the DST. Intra-group revenues are also excluded, as are the sale of own goods and services online and the supply of digital content.

In response to the compromise proposal, however, a number of delegations cannot accept the text for political reasons as a matter of principle, while a few others are not satisfied yet with some specific points in the text. That text did not gain the necessary support and was not discussed in detail.

Joint declaration

Amidst the uncompromised DST proposal initiated with EU, France and Germany came up with the joint declaration in which both member states invite the European Commission and the Council to:

  • Amend and focus its draft DST directive on a tax base referring to the placing on a digital interface of advertising targeted at users of that interface, on the basis of a 3% tax on turnover. As such the digital services tax would not apply to revenue from sales of data or online platforms, such as Airbnb or Lyft, as was the case in the original EU Commission proposal for a directive, offered in March.
  • Submit proposals in due course on taxing the digital economy and minimum taxation in line with the work of the OECD.

The joint declaration notes that the DST would not prevent the Member States from introducing in their domestic legislation a digital tax on a broader base such as making available to users of a multi-sided digital interface that involves users interaction and transmission of users data collection that generated from users’ activities on digital interfaces.

Both German and France as stated in the joint declaration urge the Council to adopt the legally binding directive on DST without delay and in any case before March 2019 at the latest. It will enter into force on 1st January 2021, if no international solution has been agreed upon.

Sources: ECOFIN

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