Taxation of the Digital Economy: High-level Expert Group presents final report
The European Commission has received the final report of the High-level Expert Group on Taxation of the Digital Economy. This independent group was asked to examine key issues related to taxing the digital economy in the EU, and to present their ideas on the best approach to various challenges and opportunities in this field. Former Portuguese Finance Minister Vítor Gaspar, who was nominated as Chair of the Group, presented the report to President Barroso and Commissioner Šemeta this afternoon. It was completed after 5 months work by the Group, which consisted of 6 other experts from across Europe with different expertise relevant to this area (MEMO/13/1042).
President José Manuel Barroso said: "With the crisis focusing attention on public finances, the issue of fair taxation has moved up the agenda, for both governments and citizens. A strong and fast-growing digital sector is good for our economy, but we must also think about how best to adapt our tax systems to the online world. I welcome the report by Vítor Gaspar and the expert group, which the Commission will now study with interest and draw conclusions in due course."
Vítor Gaspar said: "Digitisation opens exciting opportunities for entrepreneurs and for people in general. It also creates challenges and opportunities for tax systems and for tax administrations, which will have to adapt to the new realities. It has been inspiring for me to work with a group of knowledgeable and motivated people. I trust our Report contributes to progress in the international tax policy debate."
EU Tax Commissioner Algirdas Šemeta said: "A united EU approach to tackling tax evasion and a more favourable tax environment for businesses – digital and otherwise - have been our overarching goals in recent years. I am pleased that the High Level Group very much confirms that this is where our energy and efforts must be focused in EU tax policy. I warmly thank Vítor Gaspar and the other members of the group for the diligent work they have done. Their report provides very good food for thought in determining our overall policy for taxation and the digital economy, now and in the longer term."
EU Digital Commissioner, Neelie Kroes added: "This is no longer about a "digital sector" – it's about an entire economy that's going digital. It is about creating the conditions for growth and jobs. I also welcome that the group is not just seeing digital as a challenge from a tax perspective, but also as a solution for simplification, transparency and innovation in the taxation area".
The report from independent experts covers taxation issues linked to the digital economy in the broadest sense, looking at indirect (VAT) and direct (corporate) taxation, as well as wider issues on how tax policy can help maximise the opportunities that the digital economy offers.
Among the main conclusions of the report are:
The digital economy does not require a separate tax regime. Current rules may need to be adapted to respond to the digitisation of our economy.
Digitisation greatly facilitates cross border business. Removing barriers to the Single Market, including tax barriers, and creating a more favourable business environment through neutral, simplified and coordinated tax rules is therefore more important than ever.
The upcoming move to a destination-based VAT system for digital services is commended, along with the simplification that the mini-One Stop Shop will bring for businesses (see IP/13/1004). The report recommends that this could be further expanded to all goods and services (in business-to-consumer transactions) in the future.
To ensure neutrality and provide a level playing field for EU business, the Group recommends the removal of the VAT exemption for small consignments from non-EU countries. This would be supported by a One Stop Shop and a fast track customs procedure.
In the area of corporate taxation, the G20/OECD Base Erosion and Profit Shifting (BEPS) project will be fundamental to tackling tax avoidance and aggressive tax planning globally. The report strongly recommends that Member States take a common position to ensure a favourable outcome for the entire EU.
Priority areas for the EU within the BEPS project, according to the report, are countering harmful tax competition, revising transfer pricing rules and reviewing the concepts for defining and applying taxable presence
The Common Consolidated Corporate Tax Base (CCCTB - see IP/11/319) provides an opportunity for the EU to expand on new international standards (such as transfer pricing profit split methods) and achieve additional simplification within the EU.
More radical reforms of the tax system could also be looked at in the longer term, including a destination-based corporation tax.
The Commission will now consider the report and decide on policy orientations in due course.
The expert group on taxation of the digital economy was set up following discussions at the May 2013 European Council, when EU leaders pointed out that efforts are required to respond to the challenges of taxation in the digital economy. In October 2013, EU leaders welcomed the Commission's initiative to set up the expert group, which met for the first time last December.
For the report and executive summary, see:http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_inf o/good_governance_matters/digital/report_digital_economy.pdf p>
Homepage of Commissioner Šemeta: http://ec.europa.eu/commission_2010-2014/semeta/index_en.htm span>
Follow Commissioner Šemeta on Twitter: @ASemetaEU
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