Global and long-term solution needed for taxation of digital companies

The global economy has changed significantly in recent years and the wave of digitalization has influenced almost every sector of the economy. In such an environment, a single company can have a global impact and create profits even without being physically present in the country where the profits are made. However, corporate tax rules still define that companies tax their profits in the country where they are registered.

That’s why the European Commission in March 2018 presented its proposals on a directive laying down rules relating to corporate taxation of a significant digital presence and a directive on a common system of taxation of revenues resulting from the provision of certain digital services. The proposals were discussed at a debate organised by the Representation of the European Commission in Prague, the Office of the European Parliament in Prague, the Confederation of Industry of the Czech Republic and CEBRE on 5^th October in the European House in Prague. Roberta Grappiolo of the European Commission says that they propose two kinds of measures – an interim one and a long term one. The long term solution would ensure that businesses tax their profits in countries where they don’t have physical presence, but do have a taxable “digital presence”.

That digital presence would be applicable if the company fulfils one of the following criteria in a tax year in a Member State: annual revenues higher than 7 mil. EUR, more than 100 000 users or more than 3000 business contracts for digital services with business users. The interim solution would apply a 3% tax on companies with total annual worldwide revenues of 750 mil. EUR and EU revenues of 50 mil. EUR. According to MEP Petr Ježek, such measures wouldn’t harm creation of new services and products as start-ups and SMEs would be excluded.

Czech businesses, represented at the debate by Vladimír Štípek of the Confederation of Industry of the Czech Republic, expressed their worries related to the proposals. The interim proposal can’t be viewed as a complex solution and only ads tax burden on digital companies. The long-term solution is a good first step to debate on this topic; however, the measures need to be in line with other proposals of the European Commission, like CCCTB. In addition, the EU should aim for a global solution to this issue, not just one limited to the EU.