The EU’s first proposal would enable Member States to tax profits that are generated in their territory, even if a company does not have a physical presence there. The new rules would ensure that online businesses contribute to public finances at the same level as traditional ‘brick-and-mortar’ companies.
A digital platform will be deemed to have a taxable ‘digital presence’ or a virtual permanent establishment in a Member State if it fulfils one of the following criteria:
- It exceeds a threshold of €7 million in annual revenues in a Member State
- It has more than 100,000 users in a Member State in a taxable year
- Over 3000 business contracts for digital services are created between the company and business users in a taxable year.
The new rules will also change how profits are allocated to Member States in a way which better reflects how companies can create value online: for example, depending on where the user is based at the time of consumption.
Ultimately, the new system secures a real link between where digital profits are made and where they are taxed.
The measure could eventually be integrated into the scope of the Common Consolidated Corporate Tax Base (CCCTB) – the Commission’s already proposed initiative for allocating profits of large multinational groups in a way which better reflects where the value is created.