(1)

Rapid transformation of the global economy as a result of digitalisation is putting new pressures on corporate tax systems both at Union level and internationally, and calling into question the ability to establish where digital companies should pay their taxes and how much they should pay. Although the need to adapt corporate tax rules to the digital economy is recognised at international level by bodies such as the G20, reaching an agreement at global level is likely to be challenging.

(1)

Rapid transformation of the global economy as a result of digitalisation is putting new pressures on corporate tax systems both at Union level and internationally, and calling into question the ability to establish where digital companies should pay their taxes and how much they should pay. Although the need to adapt corporate tax rules to the digital economy is recognised at international level by bodies such as the G20, reaching an agreement at global level is likely to be challenging and not taking place in the near future .

(1a)

In the digital age, now that data has become a new economic resource in addition to labour and traditional resources in the past, and as too often multinational companies that heavily rely upon digital activities make tax arrangements allowing them to avoid or evade taxes, a new approach needs to be developed in order to have a fair and sustainable system of digital taxation, which will ensure digital companies to pay their taxes where their real economic activity occurs.

(2)

The Base Erosion and Profit Shifting (BEPS) Action 1 report on ‘Addressing the Tax Challenges of the Digital Economy’ released by the OECD in October 2015 set out various different approaches for taxing the digital economy which were further examined in the OECD ‘Tax challenges Arising from Digitalisation — Interim Report 2018’. As the digital transformation of the economy accelerates there is a growing need to find solutions to ensure a fair and effective taxation of digital companies.

(2)

The Base Erosion and Profit Shifting (BEPS) Action 1 report on ‘Addressing the Tax Challenges of the Digital Economy’ released by the OECD in October 2015 set out various different approaches for taxing the digital economy which were further examined in the OECD ‘Tax challenges Arising from Digitalisation — Interim Report 2018’. As the digital transformation of the economy accelerates there is a growing and urgent need to find solutions to ensure a fair and effective taxation of digital companies. However, to date the OECD work on taxing the digital economy has not resulted in sufficient progress which illustrates the need to advance on this matter at Union level. Notwithstanding the difficulties of reaching a global agreement and the action taken by the Union with this Directive, such an agreement should still be pursued with great effort. In the absence of a common Union approach, however, Member States will adopt unilateral solutions, which will lead to regulatory uncertainty and which will be difficult for companies which operate cross-border and for tax authorities. As called for by the European Parliament’s Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA) and by its Special Committee on Tax Rulings and Other Measures Similar in Nature or Effect (TAXE2), an empowered UN tax body should be installed to serve as the forum for debates and discussions on global agreements and other matters related to the international tax system.

(3a)

The European Parliament concluded in its final reports of the Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion and the Special Committees on Tax Rulings and Other Measures Similar in Nature or Effect the need to address the tax challenges connected to the digital economy.

(4)

The European Council Conclusions of 19 October 2017 underlined the need for an effective and fair taxation system fit for the digital era and looked forward to appropriate Commission proposals by early 2018 (15). The ECOFIN Council Conclusions of 5 December 2017 underlined that a globally accepted definition of permanent establishment and the related transfer pricing and profit attribution rules should also remain pivotal when addressing the challenges of taxation of profits of the digital economy" and encourages "close cooperation between the EU, the OECD and other international partners in responding to the challenges of taxation of profits of the digital economy (16). In this regard, Member States should be required to include rules in their national corporate income tax systems in order to exercise their taxing rights. Therefore, the various applicable corporate taxes in the Member States should be clarified. These rules should extend the definition of a permanent establishment and establish a taxable nexus for a significant digital presence in their respective jurisdictions. In addition, general principles for allocating taxable profits to such a digital presence should be laid down. In principle, those rules should apply to all corporate taxpayers irrespective of where they are tax resident, whether in the Union or elsewhere.

(4)

The European Council Conclusions of 19 October 2017 underlined the need for an effective and fair taxation system fit for the digital era and looked forward to appropriate Commission proposals by early 2018 (15). The ECOFIN Council Conclusions of 5 December 2017 underlined that a globally accepted definition of permanent establishment and the related transfer pricing and profit attribution rules should also remain pivotal when addressing the challenges of taxation of profits of the digital economy" and encourages "close cooperation between the EU, the OECD and other international partners in responding to the challenges of taxation of profits of the digital economy (16). In this regard, Member States should be required to include rules in their national corporate income tax systems in order to exercise their taxing rights. Therefore, the various applicable corporate taxes in the Member States should be clarified. These rules should extend the definition of a permanent establishment and establish a taxable nexus for a significant digital presence in their respective jurisdictions. In addition, general principles for allocating taxable profits to such a digital presence should be laid down. In principle, those rules should apply to all corporate taxpayers irrespective of their size and of where they are tax resident, whether in the Union or elsewhere. Furthermore, the common rules set out in this Directive call for a broader harmonisation of the corporate tax base in the Union for all corporations. This is why this Directive should not hamper or delay works on the proposal for a Common Consolidated Corporate Tax Base.

(5)

However, the rules should not apply to entities that are tax resident in a non-Union jurisdiction with which the Member State of the significant digital presence has a Double Tax Convention in force, unless the Convention includes provisions on a significant digital presence which creates similar rights and obligations in relation to the non-Union jurisdiction as are created by this Directive. This is to avoid any conflict with Double Tax Conventions with non-Union jurisdictions, given that non-Union jurisdictions are not generally bound by Union law.

(5)

However, the rules should not apply to entities that are tax resident in a non-Union jurisdiction with which the Member State of the significant digital presence has a Double Tax Convention in force, unless the Convention includes provisions on a significant digital presence which create similar rights and obligations in relation to the non-Union jurisdiction as are created by this Directive. This is to avoid any conflict with Double Tax Conventions with non-Union jurisdictions, given that non-Union jurisdictions are not generally bound by Union law. Nevertheless, for the provisions contained in this Directive to be fully effective, Member States should be urged to adapt, where necessary, the Double Tax Conventions they currently have in force in order to include provisions on a significant digital presence creating similar rights and obligations in relation to non-Union jurisdictions as established by this Directive. The Commission may make a proposal to set up a Union model of a tax treaty amendment to be used in adapting the thousands of bilateral treaties concluded by each of the Member States.

(8)

A key objective of this Directive is to improve the resilience of the internal market as a whole in order to address the challenges of taxation of the digitalised economy. This objective cannot be sufficiently achieved by the Member States acting individually because digital businesses are able to operate cross-border without having any physical presence in a jurisdiction and rules are therefore needed to ensure that they pay taxes in the jurisdictions where they make profits. Given this cross-border dimension an initiative at Union level adds value in comparison with what a multitude of national measures could attain. A common initiative across the internal market is required to ensure a harmonised application of the rules on a significant digital presence within the Union. Unilateral and divergent approaches by each Member State could be ineffective and fragment the Single Market by creating national policy clashes, distortions and tax obstacles for businesses in the Union. Since the objectives of this Directive can be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives.

(8)

A key objective of this Directive is to improve the resilience of the internal market as a whole in order to address the challenges of taxation of the digitalised economy , while respecting the principle of tax neutrality but also the free movement of services within the Single Market and without discriminating between Union and non-Union companies . This objective cannot be sufficiently achieved by the Member States acting individually because digital businesses are able to operate cross-border without having any or having only a small physical presence in a jurisdiction and rules are therefore needed to ensure that they pay taxes in the jurisdictions where they make profits. Given this cross-border dimension an initiative at Union level adds value in comparison with what a multitude of national measures could attain. A common initiative across the internal market is required to ensure a harmonised application of the rules on a significant digital presence within the Union. Unilateral and divergent approaches by each Member State could be ineffective and fragment the Single Market by creating national policy clashes, distortions and tax obstacles for businesses in the Union. Hence, specific attention should be paid to ensuring that the Union approach is fair and not discriminatory against any particular Member State. Since the objectives of this Directive can be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives.

(8a)

In order to set up a coherent and consistent tax base framework for all corporations, the concept of a significant digital presence and the solutions presented in this Directive should also become an integral part of the Council Directives on a Common Corporate Tax Base and on a Common Consolidated Corporate Tax Base.

(8b)

If this proposal does not result in an agreement and therefore fails to eliminate distortions of competition and tax obstacles for businesses in the Union, the Commission should issue a new proposal based on Article 116 of the Treaty on the Functioning of the European Union, whereby the European Parliament and the Council act in accordance with the ordinary legislative procedure to issue the necessary directives.

(9)

It is necessary that any processing of personal data carried out in the context of this Directive, should be conducted in accordance with Regulation (EU) 2016/679 of the European Parliament and of the Council (17), including obligations to provide appropriate technical and organisational measures to comply with the obligations imposed by that Regulation, in particular those relating to the lawfulness of the processing, the security of the processing activities, the provision of information and the rights of data subjects, data protection by design and by default. Whenever possible, personal data should be rendered anonymous.

(9)

It is necessary that any processing of personal data carried out in the context of this Directive, should be conducted in accordance with Regulation (EU) 2016/679 of the European Parliament and of the Council (17), including obligations to provide appropriate technical and organisational measures to comply with the obligations imposed by that Regulation, in particular those relating to the lawfulness of the processing, the security of the processing activities, the provision of information and the rights of data subjects, data protection by design and by default , with due regard to principles of necessity and proportionality . Whenever possible, personal data should be rendered anonymous. The data that may be collected from users for the purposes of applying this Directive should be strictly limited to data indicating the Member State in which users are located, without allowing for identification of the user.

(10)

The Commission should evaluate the implementation of this Directive five years after its entry into force and report to the Council thereon. Member States should communicate to the Commission all information necessary for this evaluation. An advisory DigiTax Committee should be established to examine questions on the application of the Directive.

(10)

The Commission should evaluate the implementation of this Directive by… [ three years after the date of entry into force of this Directive] and report to the European Parliament and the Council thereon , notably on the administrative burden and additional costs for companies and especially small and medium-sized enterprises (SMEs), the impact of the system of taxation provided for in this Directive on Member States' revenues, the impact on users' personal data and the impact on the Single Market as a whole, with particular regard to the possible distortion of competition between companies subject to the new rules laid down in this Directive. The review should also examine if the types of services covered by this Directive or the definition of the significant digital presence should be changed . Member States should communicate to the Commission all information necessary for this evaluation. An advisory DigiTax Committee should be established to examine questions on the application of the Directive. That committee should publish its agendas and, prior to their selection, it should be ensured that members of that committee do not have any conflicts of interest. An observer of the European Parliament should be invited to attend meetings of the committee.

(10a)

Given the administrative costs for a significant digital presence, it should be ensured that SMEs do not unintentionally fall within the scope of this Directive. The Commission should, as part of the review process, examine the extent to which this Directive adversely affects SMEs.

(12a)

As the provisions laid down in this Directive are meant to provide a permanent and comprehensive solution to the question of digital taxation, the interim solution of a digital services tax as provided for in the Directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services shall automatically cease to apply once the provisions laid down in this Directive become applicable.

(a)

the collection, storage, processing, analysis, deployment and sale of user-level data;

(a)

the collection, storage, processing, analysis, exploitation, transmission, deployment and sale of user-level data;