Nothing but a hot 2020 July

Hot July for digital economy taxation
Hot july for digital economy taxation

Through a mid-June sent letter, the US Treasury Secretary informed the European finance ministers of their intention to re-prioritize the Digital Economy Taxation Pillar One discussions suggesting the negotiations to be put on hold while the countries addressed the Covid-199 WW pandemic crisis and focusing on Pillar two solutions.

Under their perspective, the focus now should be on responding to the health crisis and “safely reopening … economies”.

This “prioritization pause” in the Pillar one part was nevertheless communicated in fact as a withdrawal by some US trade representatives in US media and some of the EU based parties like the French finance minister took it as “a provocation”.

Regretting much the decision, the  EU economic top commissioner, highlighted his expectation of the situation being a temporary setback rather than a full breaking of the negotiations table, but warned that if the solution is finally not reached this year the EU will come forward with a new DST proposal at E.U. level.

The already long back-and-forth tax-trade war retaliations talks continue under much heightened tension, and the French Finance minister for example has lately shown signs of increased irritation with it, shared by other countries.  

It is clear that the US is not happy with a Pillar one shortcut on the arm’s length principle but these conversations, as well as others come from long and it is worrying to observers to see it at this stage of the process that started with Action 1 BEPS around 2014 and also to see that structural elements are again on the table.  

In case of no final agreement, the consequences, discussed several times in previous posts, could really be damaging for an economy that needs to recover and a a monetary and economy system that needs to contribute to restore trust post Covid-19 rather than the other way around and when most supply and value chains have been seriously affected by the situation and will have a tough time to ignite back.  

After the situation created, it seems that the U.S. still plans to participate in the expected early July meetings organized by the OECD to discuss the digitalized economy taxation.

From a more strategic point of view, it is to be observed if the long process behind and the extreme friction created lately will end up in a serious drain on digital tech perception in the mind of informed citizens that could end up building conscious communities with evolved values and perceptions over the brand of US technological companies that are otherwise delivering great products and services.




Resuming from our initial post on the “Next Generation EU” (NGEU) proposal, we cover now what’s inside from a pure tax perspective.

Tax part of the NGEU proposal

In the Tax policy area, the NGEU instrument is focused in the following topics:

  • 21ST Century Business Taxation
  • Stepping up the fight against tax evasion 
  • Customs single Window proposal

As technological change and globalization have enabled new business models it is clear that the international corporate tax framework has to keep pace, so the Commission will present a Communication on Business Taxation for the 21st century, focusing on the taxation aspects relevant in the Single Market.

This will be complemented by an Action Plan to Fight Tax Evasion covering Tax Good Governance and Automatic Exchange of Information as well as measures to make taxation simple and easy.  

More related to physical trade, the Commission will adopt an Action Plan on the Customs Union to promote compliance and improve the governance of the Customs Union, and will also adopt a legislative proposal on a Customs Single Window to reinforce protection while simplifying administrative burden for companies.

But the most interesting part it is for sure the Budget to fund the policy response where the “Union will provide a forceful support to Member States without putting additional pressure on their national budgets”. The Commission will propose “additional new own resources” to be added at a later stage during 2021-2027.

Additional own EU resources

The document does not elaborate on the specific of the new “own resources” to be considered, but it seems that some of them might look like taxes or equivalent figures of a particular new nature, which means imposed at an EU wide level, not country level:

  • The first 2 are focused on Emissions Trading System and Carbon border adjustment mechanisms.
  • Own resource based on operations of companies that draw huge benefits from the EU single market, expected to yield 10B€/year.
  • Digital tax on companies: expected to generate 1.3B€/year.

DET3 Comments

The own resource for companies drawing huge benefits from the single market is a novel approach for the expected difficult times coming post-Covid, where some rumors point to a levy of 0.1% on Multinational entities turnover.

Early to provide technical comments on the own resource until its nature and details are clearer, which promise to be an interesting analysis if we are really talking about a supranational EU managed revenue generation resource, but what seems clear is that Digital Tax is again strong in the EU Agenda.

According to the calendar, by summer 2020 the EU parliament will have to take a decision on Own Resources, that will have to be adopted and ratified by all Member States by December 2020.  The rest of the measures, including the Digital Tax and sectorial legislation, will have to be ready for implementation by January 2021.

All in all, a super challenging and demanding timeframe, fit for the times we live. The absence of Tax consensus EU has had during the last years in a number of areas like the CCTB or Digital Tax is to be dramatically tested in an emergency situation.

Reaching a rapid political agreement on Next Generation EU by July is necessary for recovery and to get the economy back on its feet”.

In our view, the recovery will need a very strong, united, agile and determined policy direction, that will set the tone for the Next Generation European Tax policy, because as it is recognized in the communications:

“Europe needs to be more geopolitical, more united and more effective in the way that it thinks and acts”.

But EU can’t do it in isolation. The pandemic has boosted the transition to digital business models and digital sales under direct models for most industries, so the next 7 months are more critical than ever for the truly Digitalized Economy tax policy fundamentals setting, as we are in an historic moment driven by necessity.    



The EU Commission announced on May 27th, 2020 a set of new budget and policy programs focused in both post Covid-19 recovery and resiliency for the whole EU denominated the “Next Generation EU” (NGEU).

It follows an executive analysis of the key points of this “Major Recovery Plan” and how Tax fits into the big picture plan:


Overarching plan it to repair and revitalize the Single Market, to guarantee a level playing field, and support the urgent investments in the green and digital transitions.

Next Generation EU will raise money by temporarily lifting the own resources ceiling to 2.00% and borrowing €750 billion on the financial markets to be channeled through EU programs in investments focused on those key areas.

Policy fundamentals of the recovery

  • EU Green Deal, central to recovery strategy: Renovation of infrastructures, move to circular economy, rolling out renewable energy, cleaner transport and logistics, (installing 1M charging points for electric vehicles);
  • Adapting EU single market to the digital age:  5G networks, stronger industrial and technological presence in artificial intelligence, cybersecurity, supercomputing and cloud;

    A.I. white paper / Digital Services Act / Proposal on Crypto-assets / Labor condition for Platform workers.

  • Building a real data economy as a motor for innovation and job creation;
  • Support re-skilling, to create new economic opportunities. Digital education action plan.

  • Fair minimum wages 

  • 21ST Century Business Taxation / Stepping up the fight against tax evasion / Customs single Window proposal

Policy fundamentals of building a more resilient EU

  • Enhance EU’s autonomy in a number of specific areas:

    • Strategic value chains

    • Reinforced screening of foreign direct investment.

DET3 Comments

The NGEU plan objectives are clear:

Green & Digital transitions including policies for data driven economy, and much more strategic focus on how EU will share and protect its interests in the Geo-Politics new landscape.

Also are the high level budgets and funding plans needed to nurture the expected actions behind.

As part of the 6 main “Headline Ambitions”, tax is inside the 3rd one: “An economy that works for people”, where it mention that the international tax framework needs to keep pace with technological change and globalization and it will be done through 2 initiatives:

  • Business Taxation for the 21st century
  • Action plan to fight Tax Evasion.

The fact-sheet covering in brief how EU will fund part of the plan is also indicating that several new “own resources” are to be considered; Some of them might look like taxes or equivalent figures of a particular new nature.

Please see our specific DET3 news for more information on the NGEU Tax part.

March-June 2020 update on the post-Covid Digitalized Economy Taxation global discussion: The moment that matters

Post covid digital economy taxation
Post covid digital economy taxation

The OECD calendar in respect of the Digitalized Economy Taxation, Pillar 1 and Pillar 2 approach has been affected by the global Covid-19 pandemic situation.

While the former tight schedule was defining beginning of July as the moment for the inclusive framework members to agree the base line policies, this milestone has been now pushed to October, in parallel to the G20 Finance Ministers meeting. 

Nonetheless, Mr. Saint-Amans confirmed that the December 2020 deadline for the overall basic implementation  agreement is still in place, and the target is that the G20 leaders deliver a consensus-based solution by November 2020, warning however that some elements of the agreement could be delayed until 2021.

The technical specific work of the last few months about Pilar 1 and Pillar 2 building blocks are going to be released for comments this summer, together with the impact assessment result.

The OECD mentioned that by June we can expect a set of draft model rules for Digital Platforms where the new is that the reporting will happen at the level of the country of Platform mother company residence, to be exchanged later with the countries of the sellers.  

Progress is also been made in the cryptocurrency area and we should see the output at the end of the year.

DET3 Comments

The closing of May leave us with the last news about this topic, pointing to a much more escalated tension around Pillar 1, with a concerning kind of back-to-basics in terms of Digital Ring-Fencing willingness of a few countries and the US not only proposing to consider Pillar One as a safe harbor cause their rejection to Arm’s Length principle shortcuts or automations but also proposing a GILTI-type approach for Pillar Two solution.

On Pillar 2 however, it seems that the OECD is more positive on the tone of conversations for a simplified agreement.

In our perspective, the new business normal is bringing a huge re-purposing of the digital transformation of most industries:  First to be able to have an stable or much bigger digital go to market option and second to adjust the international supply chain to preserve the present and protect the future.  

This is going to necessarily imply a tremendous boost of digital business models, some of them new as the crisis is also fostering innovation.

Remote collaboration, scattered value creation in the value chain will the norm and remain at different intensity levels after.

Digital transactions will multiply and the resulting physical flows at the supply chain different levels will be altered.  Digital Advertising is exploding with the while conversion rates are going to be different.   

A global strategic firm approach to this issue is needed. We can’t afford the heavy weight of a thousand of unilateral different country by country solutions in the first semester of 2021 when many Governments are going to be dramatically searching for liquidity and urged to collect to generate revenue.  

The EU is logically preparing is own set of special measures to take more control and drive this unprecedented situation, with Digital Tax again strongly in the agenda but let’s hope that global common-sense reigns first and everything can be properly integrated.

Integrating the EU ATADs, and any new Own Resource, US GILTI and BEAT, the new OECD Unified Approach and Pillar 2, probes not going to be easy to say the least, but Multinationals need a clear path and this might be the historic moment, driven by necessity, to raise and enforce some new overarching rules for the “new-international-tax-normal” that can shed light and avoid conflicts.

As a last side note, worth to mention that OECD works towards digital business models information sharing, reporting and ultimately transparency continues, which is positive.

French DST Administrative Guidelines analysis

French digital tax guidelines

Last March 23RD,  2020, the French  tax authority published administrative guidelines containing additional instructions to comply with the 3% DST that is in force since January 1st, 2019. The document is subject to public consultation for 30 days and provides guidance to complete the submission obligations that are part of the law.

The guidelines refer to each of the Services in scope:

Marketplaces | Other intermediation services | Targeted Advertising | Transmission of user data.

Key elements covered in the guidelines are:

  • the definition of taxable services, indicative examples
  • the territoriality rules
  • the thresholds computation
  • how to calculate the DST amount due

Relevant points extracted from the document:

  • A digital interface is any software enabling one or more users to both send and receive information.
  • The level of the market of the transaction (B2B, B2C, Peer to peer, B2B2C) it is irrelevant for being in or out of the DST French regs.
  • Digital interface definition includes any software that allows one or more users to send and receive information at the same time and seems this might include digital interfaces that allow users to publish content accessible to other users in some circumstances.
  • The absence of generation of network effects on a large scale has no effect on the characterization of the potential taxable service.
  • On computation of the tax, it is specified that the taxable amounts consist of all amounts paid by users of the specific digital interface.
  • Digital intermediation exists when a digital interface is made available by means of electronic communications, which allows users to contact and interact with each other, even on an anonymous basis.

    “Contact and interaction” is understood as the reciprocal exchange of information between users (transactions, content publication, different exchanges….).

  • Indicative non-exhaustive list of marketplaces:

    Exchange marketplaces.

    Digital interfaces technically enabling:

    • Merchants to sell goods / transportation providers / restaurants to deliver prepared meals and hotels to offer room bookings.
    • Individuals sharing the use of goods or services, provided it gives rise to a transaction through the interface (cost sharing).
    • Individuals to buy or sell goods or provide each other services for payment.
    • Mobile Application or software publishers, including gaming.
    • Right holders to distribute works to the public like video or music.
    • Travel agencies to book transport services/tickets and also include the EU regulated CRSs (Computer Reservation Systems = Software) that are qualified as “technical interfaces” because of “technically enabling users to carry out transactions relating to the supply of goods or services”.

      It is to be noted here that a CRS is just a software (lines of code) that enables the real time electronic transmission of the airlines “books of tariffs and schedules” and the automation of the administrative part of the bookings/reservation.

      The legality of qualifying a “transactions processing/automation” software that is licensed to the travel agencies (the intermediating party) as a “marketplace” is something that should be revised, especially when the ad-servers technology in programmatic advertising (which is the technological systems for automating the exchanges between the relevant intermediating parties in the digital advertising spaces) has been left out of scope.
  • Online multiplayer games are also included regardless of the access mode.
  • A digital interface operated by a Company to sell its own goods or services, without permitting transactions between users, does not fall in the definition.

Connection services marketplaces:

  • Social Networks
    • Services publishing ads that permit exchanges between sellers and potential buyers, but transaction cannot be concluded via de interface.
    • Services bringing interests together (job seek sites, dating sites….etc).
    • Reviews share sites.
    • Services enabling users to share or exchange digital content.
    • Services enabling users to play together.
  • Indicative non-exhaustive list of taxable advertising services:
  • Directories, announcement websites, or websites comparing commercial offers, goods or services or internet links, when they are remunerated by the party promoting these offers/links and offers are presented based on data the user has provided.
  • Downstream services in the programmatic advertising value chain segment when providing any tech solution allowing:
    • Real time buying of advertising space (demand-side platforms)
    • Dynamic display of advertising messages (demand side ad server)
    • Access data collected from users of digital interfaces to target the purchase of advertising space (data management platform)
    • Real time measurement of advertising messages performance (ad verification services)
  • The publication of web announcements by the owner of a digital interface, like a job posting, or self-branded content, is not regarded as digital intermediation but might be qualified as targeted advertising service.

  • 3 Conditions for a taxable advertising service to exist:

  • Their positioning in the advertising value chain:

    The services have to be sold to advertisers or their agents.
    In scope are services sold to an advertising network, a media agency or an intermediary trading desk in the purchase of programmatic advertising as long as they are not integrated in a platform for automating the purchase of advertising space (demand-side platform).
  • Placed on a digital interface.
  • Targeting conditions: must be targeted on the basis of data which concern the user viewing the digital interface and have been collected or generated during the viewing of digital interfaces.  This wording seems to rule out the very generic digital advertising that is addressed to any visitor of a website.
  • Out of DST scope digital interfaces:
  • Making primarily available digital content, communication services (instant text messages, voice messages, video messages or emails except when integrated in social media or marketplaces) or payment services to users (except in a marketplace, where the payment service is not its primary purpose).

    Digital intermediation if happens in the interface, must be ancillary.
    Supply of digital books, press articles, audio-visual works, databases or other digital content is not taxable regardless the technical arrangements of the interface or the economic conditions, even when users share their opinions.
  • Managing financial services. Interbank settlement systems, trading venues and trading systems of systematic internalisers. Multilateral Trading Facilities (MTF), subject to the most stringent operating rules. Organized Trading Facilities (OTF). Crowdfunding activities.
  • Services enabling the acquisition or sale of services for the placement of targeted advertising messages, in particular Automated Programmatic Advertising platforms (ad-exchanges, supply-side platforms and demand-side platforms), or technological platforms used by advertisers or producers of advertising space to host and distribute advertising creations or inventories (Ad-servers).  
  • Exception for excise goods. Amounts having a direct and inseparable link with the consumption of:

    • Energy products or electricity
    • Alcohol and alcoholic beverages
    • Manufactured tobacco products

DST attribution rules

A taxable service is provided in France if, during the year, at least one user of the digital interface is located in France according to specific rules defined for each of the four categories of taxable digital services.

A user is deemed to be located in France when that user accesses the digital interface from a terminal located in France, as indicated by the IP address, the geo-location data, or any other media relevant data.

The French guidelines consider that a bundle of the above defined criteria together with information of the customer account in a digital interface are indicators providing a high probability of being correct.

The digital service in scope generated revenue must be adjusted through the application of a French users’ proportional coefficient. The Digital Presence Coefficient is the % representing the annual share of taxable services connected to France.

For marketplaces, this % is calculated as the ratio between the number of supplies of goods and services for which one of the users of the service is located in France (buyer, seller or both) and the total number of supplies of goods and services.

For digital advertising services, the % is determined according to the proportion of advertising messages that have been targeted to a user located in France during the taxable year.

Whether the user has actually viewed or clicked on the message is not relevant according to the guidelines. Therefore, a message that is “targeted” based in the parameters identified above has just to be “displayed” to count for the formula.


Something that calls our attention along the document is the several parts indicating that the important elements for the DST analysis is the technical (or technological) capacity of the interface, and that the determination of the taxable amounts is to be performed at the level of the taxable service, without paying attention to the present contractual arrangements or the economic terms / flows.

This approach departs for instance from the Spanish law approach that clarifies that in order to interpret the DST application you have to refer to these elements and the context, which seems to be a more logical approach.  

The lines between being a “technical intermediary” or just “enabling technology/software” versus a real economic intermediary or true marketplace are not easy to be drawn by just analyzing the technological setup.

The French Administrative guidelines document makes a very deep dive into explaining what is in and out of scope with specific and concrete digital interfaces activity examples. Once the examples are analyzed there is no doubt it captures in scope a significant number of digital activities and for sure the ones that were intensively monetizing, at least before COVID19 pandemic.    

Being the digital activities scope in fact that wide it is difficult to assert that the measure is targeting companies mainly from one given country as the US, although a key point for the US Section 301 investigation report concluding that the French DST deliberately targets US companies is the particularity of the 750M€ first threshold for global “in-scope” digital activities that leaves out or scope most non-US companies in their view.  

The French DST Guidelines document it is quite detailed, and it covers the interplay between the different cases in scope when applicable in the same company. The Digital advertising value chain is analyzed tranche by tranche to confirm what it is in or out of scope.

It becomes clear that in some of the cases in scope getting the information required for the compliance and the execution of the formulas in practice is going to be a difficult challenge.  

If every country passing a local DST is to develop its own interpretation guidelines based on texts already differing in several points, the compliance execution burdensome charge will be tremendous.

A global agreement on the digitalized economy in general is clearly needed.

India Digital Equalization Levy amplified

India digital equalisation levy

During the last week of March, and to complete the current 6% Equalization Levy, India passed the 2020-21 budget amendments containing a 2% tax on all foreign billings to local companies for digital services.

Foreign billings being defined as the cases when companies receive the services payment abroad for a service provided to customers in India.

The tax will also apply to e-commerce transactions and revenue earned from digital advertising targeted to Indian residents.

The “e-commerce supply or services” are defined as:

  • Online sale of goods owned or intermediated by the e-commerce operator through a platform
  • Online provision of services provided by the e-commerce operator
  • Any combination of the previous

The levy is applicable when the goods/services are provided by the e-commerce operator to:

  • A person resident in India
  • A non-resident for adds sold abroad but targeted at persons resident in India or using an IP address there
  • A person who buys goods-services using a local IP address

The additional new levy is not applicable when:

  • The non-resident has a PE in India and the e-commerce supply or services are effectively connected to it
  • The previously in place 6% equalization levy on “specified services” applies to the same transaction
  • The revenue generated through local IP addresses is lower than approximately U.S. $267,000

Sources recently shared that Google is concerned about the additional burdensome to search and identify the countries where the advertising contracts generating the revenue include or finally result in practice to include local Indian users.

Digital and IT industry associations representatives are requesting a minimum 6 months deferral in the effect of this regulation as companies focus in the prevalent Covid-19 crisis management.  

DET3 Comments

Some parties are claiming this comes as a surprise, but several warnings were provided by the Government during the last 2 years. 

Considering how the Digital Advertising Industry Value Chain plays nowadays internationally based on targeting and instant retargeting, these movement seeks to capture  the part of that revenue scaping from the former equalization levy while at the same time provide an additional tax collection safety network during the Covi-19 crisis coming from one the very few activities not hardly affected by it.

While many others are practically shutting down digital advertising experienced a relevant ramp-up recently as unprecedented amounts of users are confined but connected in their houses. Tariffs will for sure be renegotiated but still the recurrence of the revenues seems will be there.

There is uncertainty at the same time about how the pandemic situation will affect the already stressed timing of the OECD work on Pillar 1 and 2.   

This extended scope to be added to the previous one prepares the “levy” to capture almost any digital service provided from abroad, and together with the local law on significant digital presence make India one of the most demanding countries from a Tax perspective for foreign pure digital play businesses, unless the revenue derived from the local users participation is effectively and completely channeled through the local subsidiary or PE.

Services from cloud providers or music and video streaming digital services are not specifically listed to fall in scope but from the law definitions we could conclude so, as it defines an “e-commerce operator” as a non-resident “owning, operating or managing a digital or electronic facility or platform for online sale of goods or the online provision of services”.  Nothing is mentioned to exempt regulated financial products intermediated / sold through digital platforms from the tax.

It would need to be confirmed if the pure licensing of software or the leasing/renting of equipment/products through a foreign digital platform to local users is subject to the equalization levy, or to regular treaty provisions.

From a technical regulation outlook, this 2% additional levy would also not be part of the Income-tax regulations and therefore not affected in principle by the provisions of India’s income tax treaties.

Adding to the counter: One more unilateral DST passed, UK

UK Digital Services Tax

The UK it’s effectively implementing the 2% Digital Services Tax from April 1st, 2020 onwards. Three different budgets were presented by the new Chancellor in the few last weeks due to Covid-19 crisis, but after Parliament green light, only Royal assent is pendent and the DST is in the text.

The tax will capture digital firms with business models in scope and revenue higher than £500 million with at least £25 million derived from UK users. Business models or digital services in scope are social media service, search engine or an online marketplace targeting UK users.

Any online advertising associated with those business models is clarified as in scope revenue if the online service also facilitates online advertising and derives significant benefit from its association with the social media service, search engine or online marketplace.

In respect to search engines, a “facility that only searches material on a single website is not itself considered to be a search engine.”

The “social media service,” (and not platform as in the draft) requires that “making content generated by users available to other users” is a “significant” feature of the service itself.  Company internal social networks to collaborate are left out of scope.

Online marketplaces of financial services providers, when they are regulated are also set out of scope.

No tax is paid for the first in scope £25 million, the 2% start to play above that revenue threshold.

Special DST revenue attribution rules:

Where one of the parties of an online marketplace is a UK user, all the revenues from that specific transaction will be considered as derived from UK users.

For transactions involving accommodation, land or buildings in the UK, its revenue will be treated as derived from UK users. When the transaction involves accommodation, land or buildings not located in the UK, revenue from that transaction will only be treated as derived from UK users if the consumer of the relevant service is a UK user.

The revenue charged will be reduced to 50% of the revenues from the transaction when a user in respect of a marketplace transaction is normally located in a country that operates a similar tax to the UK DST.

If revenues are attributable to the in-scope business activity and another activity, the group will need to apportion the revenue to each activity on a “just and reasonable basis”.

DET3 Comments

Significant effort has been left on the table by the UK Government in terms of involving all the industries and stakeholders and consider their viewpoints, and as explained in former DET3 news, the mechanic and logic of the UK DST is not exactly coincident with that of the initial EU draft Directive that is nurturing at least technically most of the European approved or in process DSTs.

US Treasury Secretary warned recently in Davos that the US would retaliate if the UK tax is finally passed, hinting Car industry as a potential target and anticipating it as an early stage stone in the upcoming post Brexit US-UK trade negotiation road.

The UK Government is moving ahead with the tax from April 2020 indeed, and while no sunset clause is finally contained in the text, Goverment has confirmed the tax would be removed if an international tax agreement is reached at OECD level on Pillar 1 & Pillar 2.

The number of countries that have passed unilateral DSTs is gradually increasing, with a clear intention to stress the need for international agreement sooner rather than later

Spanish Digital Tax, amid Covid-19 advancements

Last February 28th it was published the text of the Spanish Digital Services Tax regulation project passed by the Spanish Ministers Council in a meeting earlier the same month.  The project should be subject to Parliament potential amendments where no significant changes are expected and after its final publication in the Spanish Official Gazette it should come into force 3 months later.

The 2 principal adjustments versus the former draft are:

  • the introductory reasons explaining the tax are diminishing reference to the EU Directive as a common EU framework, while stronger weight is set to the need of a unilateral temporary measure until final global consensus is reach due to the budget pressure and the fact that this measures are considered necessary for the future sustainability of the tax system considering the impact of digital business models.
  • There is a transitory measure stating that the 2020 second and third quarters reporting won’t be due before December 20th, 2020 in an effort to accommodate a potential final global Consensus on the topic in Pillars 1 & 2 of the OECD work.

The rest of the text defining in-scope services and other elements of the digital tax is essentially the same than the former project:

DET3 Comments

If we were to consider the typical parliamentary processing timelines it is difficult that the Tax can come into force before the 2020 third quarter, but if we add the current Covid-19 generated uncertainty and its impact on all public bodies including the capacity of the Parliament to sanction new laws, a close monitoring of the case is required now.

While the structure of the tax still recreates most of the EU Draft directive former content, there are 2 relevant points where Spain is still departing from most other unilateral regulations:

The “in-scope” services local threshold of €3Million is disproportionally low considering Spanish economy size, and the automatic presumption that unless otherwise probed any digital advertising will be considered “targeted advertising” for the purposes of this law.

Many of the suggested law amendments to some of the political parties will have for sure wrapped around those issues, but at this stage does not seems likely those points might change.    

Co-relating EU A.I. strategy and digital economy taxation

A document published in advance of the February 22-23 G20 Finance Ministers and Central Bank Governors meeting in Riyadh confirmed that the EU Member States and the UK will redouble their efforts towards a consensus-based solution to tackle digitalized economy taxation. 

The EU is asking the G20 group that this is made the “top priority this year”, after waring last November 2019 that the OECD timeframe was very ambitioous and mentioning then that the elements of the solution options were becoming clearer “only gradually”.   

More concrete information has been released by the OECD with the outlining of the Pillar One Unified Approach Architecture at the end of January 2020.

In the November 2019 ECOFIN exchange of views on the topic, the OECD impact assessment was presented to the EU states representatives.

For the EU region the conclusion is that the Pillar 1 and Pillar 2 solutions will be resulting in an overall net gain for the EU as a whole with larger market countries receiving the higher impact, while smaller open economies and investment hubs such as Ireland, NL or Luxemburg to expect a reduction in tax revenues.

The ECOFIN confirmed nonetheless in November that if global consensus on the OECD Unified Approach Proposal cannot be reached, the EU will re-introduce the proposals for an EU digital services tax in 2020.

In a positive sign towards the European market regulators it is expected that Facebook CEO will “accept that the global tax reform may mean to pay more taxes…out of the US under a new framework,”  in Munich Security Conference this week.

Because of the expected economic output of the OECD proposals for some of the countries, and because of the EU traditional complications to reach unanimity, many observers are questioning the capacity of 100% of the EU Member States to reach agreement on the specific proposals on these sensitive topics as they are gradually refined.

The topic is becoming so prevalent nonetheless that it has been mentioned in the discussions preparing the EU strategy for AI and Data Economy to be unveiled on Feb 19th.

Sources familiar to the discussion confirmed that on top of the impact of digital giants on competition, many EU countries indicated that it is unacceptable that a few digital companies with the largest market-share receive most of the revenue and do not pay their fair share of taxes in the EU.

The EU is determined in raising a relevant €20bn per year investment in supporting a Common Single Market for data and A.I., and that is one of the reasons why the EU Commission is seriously analyzing to fix EU data access and its sovereignty.

In this context, the absence of a fair tax playing field is considered to have a key detrimental impact on “boosting European technological sovereignty and leadership in global digital value chains”.

DET3 Comments

No doubt that the above paragraph is a brave statement in the era of “commercial retaliation strings”, but a clear updated corporate tax system, practical and equally applicable to all digitally empowered MNEs is needed in very short term, because the A.I. driven Multinational Company organization is much closer than expected.  

Defining the A.I. strategic roadmap is in the core Board-Room agenda of most international MNEs nowadays.  

And the mentioned upcoming EU strategic papers on A.I and Data strategy are strongly calling the Member States to federate efforts in these areas if Europe is to compete.

Is then to be seen if the focus in Data and A.I. EU strategy moves the EU forces towards Tax Decisions Unanimity in the OECD discussion table for Pillar 1 and 2, but for now, the Strategic documents to be released this week are requesting a number of Common European Data Spaces in key domains and sectors like:

Industrial manufacturing, environment, mobility, financial services, energy…

But nothing is said about a “Common Tax Data Space” or equivalent…  

Key points of OECD Jan 31st outline of Pillar 1 Unified Approach architecture


  • Automated Digital Serves (ADS): businesses that provide automated and standardized digital services to a large and global customer or user base.
  • Benefit from exploiting powerful customer or user network effects, from interaction with users and customers, from data and content contributions made by users and from intensive monitoring of users’ activities and data exploitation.

               Non-exhaustive list of ADS business models:

  • online search engines;  / social media platforms;
    • online intermediation platforms, inc operation of e-marketplaces, irrespective of B2B or B2C;
    • digital content streaming; / online gaming;
    • cloud computing services; 
    • online advertising services.
  • Professional services -legal, accounting, architectural, engineering and consulting-, out of scope. 
  • Online services involving a high degree of human intervention and judgement are to be revised.
  • Consumer facing businesses (CFB): Businesses that generate revenues from selling goods or services, whether directly or indirectly, to consumers (i.e. consumer facing businesses).
  • Broad set of businesses that includes traditional businesses that manufacture physical products, but they increasingly use digital technologies to more heavily interact and engage with their customer base, and are increasingly selling or marketing online through platforms.
  • These more traditional businesses are increasingly able to have an active non-physical presence in market jurisdictions  through which they substantially improve the value of their products and increase their sales.
  • If the product is of a type that is commonly sold to consumers, expected to fall.
  • Businesses generating revenue from licensing rights over trademarked consumer products or licensing a consumer brand (and commercial know-how) such a franchise model are in scope
  • Intermediate products & components of finished products out of scope


  • Extractives, commodities, agricultural.
  • Airline and shipping businesses. 
  • Most of the activities of the financial services sector  (inc insurance) as they take place with commercial customers and “will therefore be out of scope”.

    Retail banking likely out of scope given the impact of prudential regulation and, agreements to protect local deposit/policy holders.

    In review some unregulated elements of the financial services sector: digital P2P lending platforms.


  • The new nexus is created based on indicators of a significant and sustained engagement with market jurisdictions. Standalone rule.
  • The generation of in-scope revenue in a market jurisdiction over a period of years would be the primary initial evidence of a significant and sustained engagement.
  • The revenue threshold to be commensurate with the size of a market, with an absolute minimum
  • Administration and reporting kept to the minimum through simplified reporting and registration-based mechanisms (such as a “one stop shop”) and exclusive filing in ultimate parent country.
  • The final agreement will include precise figures.
  • For ADB in scope, the revenue threshold will be the only test required to create nexus.
  • For other in-scope activities, e.g. the sale of tangible goods, the proposal will not create a new nexus if the MNE is merely selling consumer goods into a market jurisdiction without a sustained interaction with the market.
  • Further work to explore possible additional or “plus” factors (qualitative factors…) such as the existence of a physical presence of the MNE in the market or targeted advertising directed at the market where the “viewers” are located and revenue from other in-scope digital services where they are consumed.


  • Quantum of Amount A
  • Amount A, it is formula-based and excludes business activities in scope that do not exceed a certain level of profitability.
  • The formula-based approach (with no connection to the ALP) is applied only in the case of A
  • Amount A applies only to the portion exceeding a certain level of profitability (to be negotiated).
  • Portion of the residual profits that goes to market jurisdictions to be negotiated.
  • The quantum of Amount A could be weighted to account for different degrees of digitalization between in-scope business activities (“digital differentiation”).
  • Amount A: is not an additional remuneration in respect of those same “in-market” activities. 
  • The “A” tax base
  • Amount A based on a measure of profit derived from the consolidated group financial accounts.
  • Adjustments to harmonize the use of different financial accounting standards to be kept to a minimum, only material items.
  • The profit before tax (“PBT”) is the preferred profit measure to compute Amount A
  • Apply to both profits and losses. Will include loss carry-forward rules. 
  • Segmented accounts may be required to capture only in-scope business segments
  • Segmentation among regions and/or in-scope business lines may be required where profitability varies materially
  • To be considered leaving at the ability for taxpayers to elect into business line segmentation among in scope businesses (e.g. across regions or products).   
  • Allocation key will be based on sales of a type that generate Nexus.
  • Specific revenue sourcing rules by business model to be develop (i.e. online advertising revenue)
  • Elimination of Amount A double taxation
  • Appropriate mechanisms to exempt the income from tax, or to provide a credit against its own tax will be considered.
  • It will not be possible to use a corresponding TP adjustment approach as Amount A is not premised on identifiable IC transactions.
  •  This will prevent any unintended impact-issues with custom duties applied to imported goods.
  • Necessary to determine which jurisdiction will have an obligation to eliminate any resulting double taxation; and, if there is more than one jurisdiction, the quantum of the relief to be provided by each.  If there is more than one, seems it will be the “owners” of the residual.
  • Interactions of Amount A with B & C and potential for double counting
  • Amount A would be allocated to eligible market as an overlay or partial override to the ALP-based profit allocation rules.
  • As Amount A is designed to remunerate market with a portion of the relevant residual profits of that MNE group and Amount B is designed to remunerate a market jurisdiction with a fixed return for baseline distribution and marketing activities, there will be no significant interaction between Amounts A and B.
  • Instances of double counting might arise if there is an overlap between Amounts A and C.
  •  Areas for possible double counting:
    • (1) marketing intangibles in the local jurisdiction;
    • (2) comparability adjustments under the ALP; and
    • (3) uncommon interpretations of the ALP.


  • Fixed Return for Defined Baseline Distribution and Marketing Activities (BDMA)
  • Fixed return model aiming to standardize the remuneration of distributors that buy products  from related parties for resale and, perform “baseline marketing and distribution activities”.
  • Simplify the computation of the return and reduce disputes
  • Explore how to account for different functionality levels
  • Ensure BDMA are only remunerated in Amount B and not (again) in Amount C.

    To be achieved by clear definition: Will likely include “distribution arrangements with routine levels of functionality, no ownership of intangibles and no or limited risks”.
  • Reaching agreement on the amount of the fixed % will require countries to make tradeoffs
  • Treaty changes will not be required to implement Amount B regime (as is ok with ALP)
  • Other key technical matters to be advanced:
  • % return set at median /
  • Benchmarks to support the fixed % & likely industries/regions differentiation


  • In essence:
  • Early dispute prevention process with innovative mechs
    and binding dispute resolution  as last resource.
  • Main disputes expected between A & C.  Not with B if clear guidance on the scope of Amount B.
  • A clear, administrable and binding process for early dispute prevention.
  • Exploration of representative panels which would carry on a review function and provide tax certainty.
  • Use of standardized rules for information reporting, filing of returns and collection of tax


  • A new multilateral convention could be negotiated to establish a new multilateral framework to ensure that all jurisdictions implement the UA consistently and at the same time. 
  • Would apply between jurisdictions that do not currently have a bilateral treaty, supersede the relevant provisions of existing treaties
  • Consensus agreement must include a commitment by members to withdraw relevant unilateral actions,


  • An alternative approach to Pillar One implementation will be considered.
  • Under this alternative global safe harbour system, an electing MNE group would agree, on a global basis, to be subject to Pillar One.
  • From the OECD doc non-exhaustive list of considerations to be addressed, we select 2 critical ones:
  • Potential scope modifications to amount A
  • Behavioral implications for taxpayers and jurisdictions


  • In respect to the Thresholds, in essence Groups will have to segment their consol financial statements by in scope activities and business lines, and calculate 5 thresholds there at different levels:
    • 3 Based in revenue, and 2 based in profitability
  • The Graphic decision tree provided by OECD to help MNEs understand this is as follows: