Today, an EU Expert Group on Taxation of the Digital Economy will present its conclusion in the presence of Commissioner President Barroso. The expert group is set up to correspond with the OECD, who at the request of the G20, has designed an action plan to address what it calls base erosion and profit shifting (BEPS) – namely that the corporate tax base is eroding due to the internet.
Following media reports on the low tax rates paid by some of the world’s largest multinationals, international tax reform has moved to the top of policy-makers’ agendas across the world. However OECD itself admits there is no evidence of base erosion in reality. Nonetheless, some OECD and EU Member States are targeting the digital economy as the main culprit for alleged erosion of corporate tax income.
Our new report raises doubts on some of the assumptions surrounding the OECD/EU work. Here’s our first example – as we can see, internet companies in fact pay effective tax rates similar to European multinationals:
The options currently considered in the OECD BEPS process is to require online businesses to have a local presence in every country they operate in, and thereby forcing them to pay taxes in these countries. This would not only contradict the OECD’s own technology neutrality principle in taxation, but also reverse the free movement of services on the EU’s single market. In essence, it would create a separate tax regime for the digital economy, despite intentions to the contrary.
Furthermore, the idea that digital services/online exporters should be seen as always having a commercial presence in the countries in which they operate would mean that music, e-banking, e-commerce web based delivery services, etc. would be barred from international trade. The EU is negotiating more cross-border trade commitments (so-called mode 1) with efforts to ensure that they are not linked to requirements on local presence – but apparently, this should apply everywhere except in Europe itself.
Good luck explaining that double standard to the US and Chinese trade negotiators.