Digital economy and tax challenges. Dec 2017 ECOFIN conclusions

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2 Digital economy and tax challenges Dec 2017 ECOFIN conclusions

3 Keypoints to the initiative Estonia (EE) held EU Council presidency in 2nd half of 2017 Digital economy tax problems is EE own file Main idea Intl tax regulations based on physical locations and tangible assets are outdated for the needs of digital economy No naming & shaming avoidance is a separate issue Openness and cooperation liaison with main actors and seeking commonalities, not disagreements

4 The pressure cooker is on a hot plate Political pressure Discontent with the speed of moving ahead with solutions while the economy is more and more digitized day by day Relieving the pressure (literally, letting the steam out) will give valuable time to find long-term solutions Vast majority of EU side with long-term, comprehensive, global solutions, which would enable to keep intact the rest of the internationally agreed tax principles Short-term measures or quick-fixes are proposed by 10 MS for the interim no objections to such discussions amongst others

5 ECOFIN conclusions - principles Challenges of digital economy taxation go beyond BEPS Permanent establishment could remain as the central concept for global allocation of taxing rights Current PE determination rules may lead to misalignment between profit taxation and value creation locations Value creation process exploration done by OECD is highly appreciated by EU MSs A new global approach needed based on revised concepts of PE, profit allocation, and transfer pricing rules Neutrality preferred i.e. new rules could in the best case scenario apply also to old economy

6 ECOFIN conclusions gist of matter The most viable option for the new nexus seems to be virtual PE, based on factors identified in BEPS Action 1 report Profit allocation and transfer pricing must be taken into consideration Short-term measures possible But there are no concrete measures written up to be supported unanimously, only an agreement to discuss and consider Role of data must be given attention as data-driven economy is on the rise and distortions are possible if data is disregarded, including possible reporting opportunities of platforms to tax authorities

7 ECOFIN conclusions how and when Commission is asked to assess feasibility of short-term measures on EU level, because there is a unanimous concern that absense of consensus on a global level undermines EU Internal Market Invitation for Commission proposal in early 2018, which has a goal of avoiding intra-eu unilateral measures Global response in cooperation with OECD and other international players is a clear preference it naturally results in high expectations for the OECD s work Asking the OECD to take the ECOFIN conclusions into account and also asking the Commission to take considerations from OECD s ongoing work into account

8 Steps that follow(ed) Commission public consultation on the topic Commission proposal in early presidencies Bulgaria and Austria fully engaged and devoted to the topic Discussions and draft legislation agreement in working parties and high-level working parties upon Commission s proposal International cooperation monitoring, discussions, analysis, communication Adoption of EU legislation and transposition into national laws

9 Allan Alajaan, Courtesy of Tallinn City Tourist Office & Convention Bureau

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