EU Commission launches move to tax digital economy

The European Commission announced on Thursday the launch of a new European Union (EU) agenda to ensure taxation of the digital economy in a fair and growth-friendly way.

The aim is to ensure a coherent EU approach to taxing the digital economy that supports the commission's key priorities of completing the digital single market and ensuring the fair and effective taxation of all companies, according to the commission's press release.

The commission said new EU rules for taxation of profits in the digital economy could be set out as early as spring 2018.

“Modern taxation rules are essential to leverage the full potential of the EU's digital single market and to encourage innovation and growth," Commission Vice-President for the Digital Single Market Andrus Ansip said in the statement.

"This means having a modern and sustainable tax framework which provides legal certainty, growth-friendly incentives and a level playing field for all businesses," Ansip said.

"The EU continues to push for a comprehensive revision of global tax rules to meet the new realities."

Commission Vice-President for the Euro and Social Dialogue, Valdis Dombrovskis, said in the press statement: "There is broad agreement that the growing digitalization of the economy creates huge economic opportunities.

"At the same time, our tax systems should evolve to capture new business models while being fair, efficient and future-proof. It's also a question of sustainability of our tax revenues as traditional tax sources come under strain," Dombrovskis said, adding:

"Not least, it's about maintaining the integrity of the single market and avoiding fragmentation by finding common solutions to global challenges."

The commission noted the current tax framework, which was designed for the traditional economy, did not fit with modern realities.

"As a result, the effective tax rate of digital companies in the EU is estimated to be half that of traditional companies – and often much less," the statement read.

The commission also said the first focus should be on pushing for a fundamental reform of international tax rules, which would ensure a better link between how value is created and where it is taxed.

"In the absence of adequate global progress, the EU should implement its own solutions to taxing the profits of digital economy companies," it added.

According to the commission, a digital single market, where the free movement of goods/persons/services/capital/data is guaranteed, could contribute €415 billion (nearly $500 billion) to the European economy, boosting jobs, growth, competition, investment and innovation.