EU urged to push ahead with digital tax reform

The European Union should push ahead with overhauling the rules around how digital firms should be taxed even if other jurisdictions fail to follow suit, a European Commission report has said.

The document is part of new EU-wide clampdown on tax avoidance by firms such as Google, Amazon and Facebook, who are accused of paying too little tax in Europe by routing most of their profits to low-rate countries such as Ireland or Luxembourg.

The commission’s report will be presented at a summit of EU leaders in the Estonian capital Tallin later this month and aims to pave the way for a legislative proposal on EU rules for the taxation of profits in the digital economy, possibly as early as next year.

“The tax rules in place today were designed for the traditional economy and cannot capture activities which are increasingly based on intangible assets and data,” the commission said.

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Common tax base

In a move that is likely to set alarm bells ringing in Dublin, the Commission suggested that EU plans to harmonise tax rules across the bloc, known as the common consolidated corporate tax base (CCCTB), could be used to incorporate new rules on digital taxation.

The commission said the CCCTB proposals offered a good basis to address the key challenges and provide a sustainable, robust and fair framework for taxing all large businesses in the future.

Ireland has been a long-standing opponent of the CCCTB plan, viewing it as a direct attack on the State’s coveted 12.5 per cent corporation tax rate.

The Government also believes the OECD should be left to shape proposals on digital tax reform through it base-erosion and profit-shifting (Beps) initiative.

Minister for Finance Paschal Donohoe said yesterday Ireland would resist any attempt to change the voting arrangements on tax matters in Europe, viewed by many as key to pushing through the commission's tax reform agenda.

"Let me be clear, the Irish Government would not favour any such change. Our view is that tax is a matter of member state competence and that unanimity should remain," Mr Donohoe said at an Irish Times/ PwC tax summit in Dublin.

The commission’s document 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.

However, it said that in the absence of adequate global progress the EU should implement its own solutions to taxing the profits of digital economy companies.

"We now want to create a level playing field so that all companies active in the EU can compete fairly, irrespective of whether they are operating via the cloud or from brick-and-mortar premises," EU Commissioner for Economic and Financial Affairs Pierre Moscovici said.