Tax treatment for online businesses

Chetcuti Cauchi | Published on 10 Jun 2014

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On May 28th 2014, the high-level Expert Group on Taxation of the Digital Economy presented its final report to the European Commission. The group was tasked with examining 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.

The report covered both direct and indirect tax issues as well as wider tax policy issues and suggested that steps should be taken now to establish a viable and efficient system of taxes for digital businesses, in order to ensure economic growth, tax compliance and stable tax revenues into the future. 

The report addressed the currently pertinent issue of special taxes on the profits of online businesses, as currently is being discussed in France and Spain, and it was stated that enacting such charges would be detrimental to the economy, and, instead of a separate taxes, “…general rules should be applied or adapted so that “digital” companies are treated in the same way as others.”

In addition to the specific recommendations, the Group added that any consideration on the taxation of online businesses should be focused on facilitating a straightforward and predictable system, which does not lock out small and medium sized businesses, and does not rely on unnecessary tax breaks or incentives. 

Salient conclusions of the report were the following:

  • whilst no separate tax regime is advisable for the digital economy, current rules may need to be adapted;
  • since digitisation greatly facilitates cross-border business, the removal of barriers to the Single Market, including tax barriers and creating a more favourable business environment  through simplified and co-ordinated tax rules is more crucial than ever;
  • the upcoming move to a destination-based VAT system for digital services is commended;
  • in the area of corporate taxation the G20/OECD BEPS project will be fundamental to tackle tax avoidance and agressive tax planning globally;
  • the Common Consolidated Corporate Tax Base (CCCTB) provides an opportunity for the EU to expland on new international standards (such as transfer pricing profits split methods) and achieve additional simplification within the EU;
  • more radical reforms of the tax system could be looked at longer term including a destination-based corporation tax.

Algirdas Semeta, EU tax commissioner said:  "A united EU approach to tackling tax evasion and a more favourable tax envionment for businesses - digital an dotherwise - 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".

The Commission will be considering the report and decide on policy direction in due course.

 


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Dr Jean-Philippe Chetcuti

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+356 22056111
jpc@ccmalta.com

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Senior Partner, Corporate, Tax & Immigration

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