The EU confront international tax challenges

by Anthony Kerr, getsix.eu, Wrocław, Poland

12 October 2017

On 16th September, 2017, in Tallinn, Estonia, the EU’s Economic and Financial Affairs Council (ECOFIN) met to discuss ways to confront international tax challenges posed by the digital economy.

Tax problems connected with the digital economy and the need for new solutions have been a subject of discussion for a long time. At the same time, companies have to operate in unequal conditions. Countries are deprived of tax income and to compensate for that, they impose unilateral measures. This, however, harms our common market and the entire EU. Thus, the sooner we reach a solution the better. This guarantees the fairer taxation of companies and creates a better business environment.

(Mr Toomas Toniste, Minister for Finance, Estonia)

For us, it is important to agree on new international tax rules that also take into account the business models of the digital economy. This would guarantee equal taxation of all companies regardless of their location or place of activity. I hope that today's discussion helped us get a step closer to a suitable solution.

In early September, the Finance Ministers of France, Germany, Italy, and Spain called the Estonian Presidency to introduce a tax based on revenue, in addition to existing taxes on companies’ profits, to be known as an ‘Equalisation Tax’.

According to Mr Toniste, a mutual solution that covers the entire EU is imperative because different tax rules within Member States could create multiple taxation and lead to a belief that doing business outside of the EU is more lucrative, than inside the EU. He also said “If we can agree on the approach inside the EU, then we can also affect the global rules in a way that is favourable to us. We all agree that a global solution would be the best solution”.

Estonia’s is of the opinion that when bringing the tax rules up-to-date, it is also imperative to abandon the obligation that companies have to be physically present in a country or own assets there, and replace this with the model of a virtual permanent establishment.

The Finance Ministers agreed to move forward quickly and to reach a collective understanding at their upcoming meeting in December.

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