This week is a busy week for the digital industry. The EU Court of Justice is closing two cases involving digital-economy giants. At the same time, the EU Commission released its new Tax Package covering three separate but related initiatives: a Tax Action Plan (25 distinct actions) to make taxation “simpler, fairer and better attuned to the modern economy over the coming years,” a proposal on administrative cooperation (“DAC 7”) extending EU tax transparency rules to digital platforms, and a Communication on tax good governance proposing a reform of the Code of Conduct, which addresses tax competition and tackles harmful tax practices within the EU. DAC 7 and the new transparency rules will directly impact the digital industry.
The EU Commission views the specific, cross-border nature of the platform business model as making it difficult for tax authorities to detect the income earned on platforms and to tax it appropriately. Consequently, the Commission has proposed to amend the Directive on Administrative Cooperation (“DAC”) to extend the EU tax transparency rules to digital platforms. Member States will automatically exchange information on income generated by sellers on digital platforms. This should allow national authorities to identify situations where tax should be paid and might also reduce the administrative burden placed on platforms, who already have to deal with several different national reporting requirements. In addition, DAC7 will strengthen administrative cooperation through the clarification and improvement of existing rules, such as an explicit inclusion of joint tax audits and group requests.
The Tax Package does not cover the issues related to digital taxation or minimum effective taxation. The Commission will also work on a new approach to business taxation to address the challenges of the digital economy and should present a dedicated action plan on business taxation this Fall.