Country Prime Minister indicated in March 2019 that it is not fair in the way their tax system treats individual tax payers, versus multinationals, announcing that the country will soon open consultation to tax highly digitalized companies like those offering social media networks, trading platforms, and online advertising, as they earn a  big sized income from New Zealand consumers without being liable for income tax.

Revenue Minister further informed that the DST could come into force by 2020 at a rate between 2-3%.

DET3 Comments

Seems NZ idea is having the country ready to implement an interim DST measure like some EU and LATAM countries are doing or exploring, even before OECD finalizes its final document expected in late 2020.

To be noted is that Australia has been considered by many a policy influencer to the country and Australia has recently released communication expressing that based on their recent Public Consultation feedback on this topic and in parallel international developments, “the government has decided to continue to focus our efforts on engaging in a multilateral process,”;

In other words, Australia will hold any local digital services tax measure at least until the time for the mentioned OECD work is concluded.


On March 6th, 2019 France has published its draft of a 3% Digital Services Tax that will affect companies with global revenues of at least EUR750m and sales of in-scope services in France of EUR25m or more.

The tax will be targeting on-line intermediation services and digital advertising revenues from services that rely on data collected from internet users, and the sale of user data for advertising purposes. The targeted companies are in essence on-line marketplace platforms and digital advertising platforms.

The Draft is based in the recent EU Directive proposal that was not finally passed, and like on it, content distribution is not subject to tax, nor regulated financial transactions.

Following French Finance Minister, around 30 companies are expected to be within the scope of the new tax, many of which are likely American.

DET3 Comments

The French DST draft does not come as a surprise as indicated in our previous news as after all the French efforts at the supranational level, it was expected a “lead by example” local approach as a default.

The initially considered tranches based incremental French tax rate up to 5% has been abandoned and aligned to EU previous draft, and the threshold to fall in the tax is more prudent and logical than other EU drafted or passed proposals.  

Expectation is there won’t likely be significant political opposition to convert this tax draft in final regulation.



The 2 days were very focused in getting real-time public stake-holder’s inputs during he sessions, with countries Tax Administration representatives mainly observing the dynamics.  The very collaborative & inclusive nature of the session was very appreciated by attendees.



Almost general acceptance that this is an overall economy topic and ring-fencing not necessary nor appropriate. Someone pointed that “there is no real difference between a marketplace intermediary and a financial intermediary”.


Commitment to work for tax system change was shown by all stake-holders.

Any solution must accommodate future changes and not just current situation.

Getting the BEPS Inclusive Framework 129 countries coalition consensus will be a challenge as there will be winners and losers.

For some it is not possible to reach deep & general consensus, universally binding dispute resolution and to do it all in two years.

For others timeline to consensus is triggered by unilateral measures and the fact that there is a mandate for a quick resolution because countries’ need for revenue is urgent.

Others, like DET3, we are of the opinion that the international tax community needs to focus on timely solutions now. The sooner we are all “hands on” on alternatives, the better.


TFDE) is currently developing a work program for discussion and approval by the Inclusive Framework by the end of May. The “hard technical work” on the alternatives will be between May and 2019 end or 2020 January, when a progress document for discussion will be presented.


  • Deep articulation of principles required by some of the participants.

  • Some preferred a solution based on a value creation framework instead of a destination framework cause of potential economic distortions.
  • Important for any solution to take into account the cost of capital and how it affects trade and investments. If education & innovation country is not rewarded, incentive to invest decreases, with potential impact on environment & climate change.

    Any solution must have balance between the reward to innovation and the reward to destination. Any residual allocation of taxing rights should not provide much taxing power to market countries.
  • Adopting some of these tax proposals could undermine the ability of potential creditors to assess a company’s solvency risk (likely referring on stand-alone legal entity basis).
  • Any proposal adopted must be simple enough to be enforced throughout the world.


  • For some stake holders, TP is the principle to protect at maximum, but others welcome a shift to a greater use of formulary-based methods.
  • Trade Unions: TP rules & the arm’s length principle are “a recipe for fragmentation.” They support moving to formulary apportionment and disputes the notion that nations cannot agree on a formula. 
  • Commentators like DET3 indicated that if to a right work in selecting the factors and the combination of those, it can be a very rational representation of facts & circumstances and ultimately value creation. But just 3 factors won’t do it. See DET3 suggestion/proposal contained in our comments.
  • A movement to the location of “value realization” concept (versus creation) was also suggested by a scholar.
  • Any move away from the arm’s length principle should be based on a deep principled approach in the opinion of some.
  • Distinctions should be made between distributors versus component manufacturers, raw material manufacturers, or intermediate goods manufactures.
  • A number of observators asked to just improve the Arm’s length standard rather than Pillar 1 options, as it is based on sound economic principles, though it may need be tweaked to achieve fairness.
  • It was mentioned that TP is not about transactions but about allocation of profits, and if changing Art.9 to introduce un-related transactions/activities coverage was an option?.


  • User participation was the less accepted option in general as it may not lead to the same amount of value in different businesses, can cause distortions and ring fences.
  • Formulary solutions or SEP, perhaps with rebuttable presumptions, safe harbors, and controlling mechanisms were mentioned by many of the commentators.

  • Many stakeholders, including DET3, pointed that SEP and the economic presence test would more comprehensively address the international tax challenges arising from the digitalization of the economy. In our view it can be a good enough technical path to articulate a transition to the future international taxation system.

  • Marketing intangibles option (MI) liked by many commentators. Spirit in the air that day little more inclined to this option although many pointed the absence of development of the SEP alternative as a reason for a limited analysis on it versus MI.

The problem with marketing intangibles approaches almost everyone agreed is complexity and many mentions to the fact that MNEs sell cause of great products and not only great marketing. Marketing intangible not to be overvalued.

Also, the determination of where is consumers demand generated, if locally or through external efforts??

  • Although the OECD provided a hybrid alternative joining user and marketing intangible options, almost no reference was made to such.
  • Certainty over accuracy preferred by the business representative’s majority.


Johnson & Johnso proposal, departing from AL but traceable, simple and providing certainty to resolve the perceived market country under compensation.

Some representatives urged the OECD to do impact assessment about the options on the table with real data.

Richard Bradbury said the OECD lacks access to needed data to evaluate impact and they would really appreciate companies to share their insights or impact analysis on their business with the OECD on a confidential basis.


Surprise in part of the audience about this pillar sudden emergence. Many controversies.

Some mentioning that a minimum tax would relive tension from Pillar 1, others questioning it frontally cause of the potential damage to economy of this new rules on top of the existing measures.

Focus should be addressed to low/no economic activity and substance.  Substance test to manage any income inclusion or deduction denial rule.  Something we clearly endorse from DET3.

Commentators pointed that any minimum tax should work on foreign consolidated accounting basis using ultimate parent financials and imposing the tax at the ultimate parent level.

OECD Jan 19 policy note on Digitalized Economy Taxation: focus in resolving, tone-change, roadmap & Sprint needed

OECD released yesterday a 3 pager policy note with the proposed way forward on the analysis of the difficult Digitalized economy taxation global issue.

To resolve the fundamental question of how taxing rights on income generated from cross-border activities in digital era should be allocated, the intensified and renewed discussions will focus on two central pillars:

The first pillar will focus on allocation of taxing rights including nexus issues:

  • Specific work on how to allocate profit to Active User Contributions,
  • how to value Marketing Intangibles created by the market jurisdiction,
  • how to determine nexus based on significant economic/digital presence.

The second pillar will focus in addressing other remaining BEPS issues:

  • Addressing profit shifting to countries with significantly disparate tax rate, providing residence and source countries a right to “tax-back” profit subject to low rates or where not commensurate substance is placed. Specific tools are described to achieve this, including proposals like the “minimum tax”.

The note confirms the agreement of the inclusive framework members to examine proposals in the 2 pillars with the objective of defining the solution by 2020.

The paper openly recognizes straight basis that “all” Pillar 1 proposals would lead to solutions that go beyond the arm’s length principle. Some of the proposals will break the corner-stone decades old rule of the need for physical presence to allocate taxing rights.

It is clear from the note that one of the key focus areas that is seen as a solution is allocating more profit to the market country based in locally created marketing intangibles in limited risk distribution structures.  After BEPs reviews, this would force an additional deep-dive review into hundreds of these structures in the world, in any industry.

The other proposals related to user related profit attribution and Digital Era PE creations will have far reaching consequences. One way or the other, the members have agreed to look beyond the edge of the current international tax architecture and take a deep but accelerated dive as it is said the solutions consensus is to be made by the end of 2020.

Simplicity and practicality of solutions are also principles agreed in the last meeting.

All-together, something tremendously challenging considering the legacy mindset of the international taxation negotiation process, the certainty some negotiators tend to request and all that needs to happen before the solution is inked-in. 

But we sense a clear change in the tone of the OECD message, and in the focus towards disruptive solutions as the path forward. Something that we consider as positive and needed.  


After receiving a huge number of comments from public stake-holders during the public consultation period, the Spanish Government approved an additional stage of the digital-services tax regulatory process at a cabinet meeting last January 18th.

The Spanish DST draft law still require parliamentary approval before entering into effect.

The Spanish Government spokeswoman indicated at press-conference that Spain is in its route “to be the first EU country to adapt taxation to the new digital business models, to make companies pay taxes in the places where they generate profits…”.

The tax, she said, is referred to platforms that were working on a “privileged manner” and expressly said it was representing “unfair competition”.

She is not a technical person from the Minister of Economy nor Taxes, but in the explanations she provided she mentioned that the tax is aimed at “Platforms”, describing them as elements that put users in contact, precising also that the type of digital advertising to be taxed is “Targeted on-line advertising” that has “already  studied user preferences and behaviors….”.

As indicated in our previous DET3-post, the tax follows quite closely the EU Draft Directive text, and it will apply to companies with global revenue above EUR750 million, that generate at least EUR3 million of “in-scope” digital-services revenue in Spain.

Relevant changes and DET3 Comments

The key changes the text incorporates after the public hearing are the following:

• Confirmation that in the “in-scope” data transfers there is only place for those being supplied for consideration (being priced and charged).

The text precise that not only sales but also licenses of user generated digital data.  No precision about sales of data captured with sensors (IOT) or sale of data by a regulated financial entity as not subject to the tax like in the updated version of the EU DST Directive draft released during last December ECOFIN.

• A new definition of “Targeted Advertising” is inserted in the text, whereby “any form of digital commercial communication aiming to promote a product, service, or brand, targeted to the users of a digital interface through the data collected from them” would fall into it.

The most concerning inclusion here is a “Iuris Tantum presumption” that all advertising is “targeted”.

Charging the burden of proof to the tax payer in this complex determination is something that might generate important friction levels and cumbersome workload and analysis for companies above the 750EM threshold in any industry and not only digital players as more and more companies are moving to platform-based business models or have develop a deeper company website-based interaction as the first step of such transformation.

All these is connected to the inclusion of an additional formal obligation for companies to “establish the systems, mechanisms or agreements” enabling the user devices localization for the purposes of this tax application, and its connected new penalty regime around hiding IP addresses.

• A relevant difference with the EU draft was the fact that Inter-company transactions fall in scope of the Spanish DST.

Like in the targeted advertising case, we worked with the General Taxation Directorate during consultation to assist illustrating the practical cases where that measure could generate important inconsistencies across international value chains and multiple taxation situations difficult to correct.

The evolved text temper this inclusion down, by excluding transactions with related parties with 100% direct or indirect participation. It won’t resolve all cases but is a very welcome measure by the Multinationals community.

• Elimination of the difficult previous definitions about “systematic internalizers….” etc. in the financial services industry, being replaced by the introduction of a more understandable definition of “Regulated Financial Services” and “Financially Supervised (regulated) entity”.

This is in line with the last version of the EU Draft Directive released previous to last December ECOFIN.

Penalty CAP: Establishment of a range & CAP for the 0,5% penalty charged on last year Net Revenue in the case of being fined for not having appropriate control on the process of determining if user device was in Spanish taxable territory. Minimum penalty will be €15.000, and caped to €400.000.

If the Tax gets final approval in Parliament, smooth cooperation between the technological and technical arms of the Spanish Tax Administration in their analysis to ensure adherence to the “place of realization” declaration obligation should be required, but the new and additional formal obligation explained above moves a relevant part of that effort to the tax payer’s side.

The Italian and Spanish local DST versions are making progress towards approval with the draft Directive “full scope of services version”; That means the 3 initially targeted services in scope, not less, not more.

If the Franco-German approach generates a reduction in the scope in case of a potential unanimous agreement at EU level next March, both Governments will need to re-evaluate their internal timings or correct it the following years budget law (Spanish elected option). Likely the deficit levels pressure affecting both countries will impact their decisions.

On that, French Finance Minister Bruno Le Maire said yesterday that at EU level he is “convinced that a deal is within arm’s reach between now and the end of March” after the adjustment and alignment of the German-French positions.

In any case, he is firmly supporting EU Commission plan to eliminate the EU tax veto and has regrouped forces internally to have the French DST version ready in parallel.

A version that could tax Digital companies with WW gross sales higher than 750 million and 25 million euros of in-scope services in France, with a tax rate up to 5% and an a very expeditious regulatory approval process expected. 

Withholding tax on digital advertising enacted in Turkey – January 2019

Since a Law introduced in September 2016, the chance of new WT obligations for e-business related transactions was open in Turkey.  Now, effective from January 1st, 2019, revenues from online advertising services provided by non-residents are subject to 15% withholding tax in Turkey.

The payer for these services is required to deduct 15% tax from the payment to the service provider or to the party acting as intermediary to the taxable service.

The new WT applies when the services are provided by non-residents but there were changes also in the Corporate Tax regulations leaving clear that no WT is to be collected if the digital advertising service provider is a Turkish resident company. No deductions from the tax base are entitled.

What if there is a treaty?

As Treaty obligations prevail over Turkish local regulations, and most of the treaties currently signed by Turkey would normally consider Advertising as a service falling in article 7 and therefore not subject to withholding tax, it is to be assessed what the impact of this new rule will be in those cases.

If treaty partners are excluded, then the collection capacity of the measure decreases significantly.

But having clarity on this will help foreign companies based in treaty countries to get certainty in these business relationships with Turkey. 

DET3 Comment

The path selected by Turkey is different than that of the countries pursuing a non-treaty based digital advertising services taxation on a temporary basis.  This could be seen as a first step in a more fundamental regulatory process that will influence their treaty negotiations.

Let’s remember that since 2016 Turkey has also an internal regulation draft also pendent to be passed stipulating that “The Ministry of Finance would be authorized to determine the scope of an electronic PE…”.

The definition given in that draft was referring to “The assignment or the use of the internet, an extranet, intranet or a similar telecommunications environment or tool for commercial, industrial or professional activities would result in the creation of an “electronic PE”;

Being that definition only 2 years old, we could consider it somehow “out of fit” in the current supra-national discussion centered around user data, data gathering, and factual digital business contracts/transactions.

But the intention and the direction of this G20 local tax regulator is clear.    

Italy passes Digital Services Tax in 2019 revised budget

After the EU rejected the original draft of the Italian 2019 budget that was pointing to reduce local GDP by 2.4%, a new revised budget with additional taxes has been finally approved by the Parliament that it is supposed to leave instead the GDP reduction in 2,04%.

The law, adopted Dec. 30, incorporates a 3% Digital Services Tax that is succinctly worded but whose initial definitions are now completely in line to the ones in the EU DST Directive Draft, which means that the former services scope passed in the 2018 budget is no longer valid.

Implementing legislation developing the details of the services in scope (and other elements like defining when a digital device is used in Italy) is needed and it should be passed around April 2019, with the tax expected to gain full effect in June.

Digital Services in Scope and joint liability rule

Like in the EU Directive Draf the tax applies to revenue from online advertising, multisided digital interfaces, and data sales by companies with global annual revenue of at least 750 million euros, and at least 5.5 million from in-scope digital services provided in Italy.  User contribution to the generation of value will be a necessary element. 

The initial text suggest there will be a joint liability rule, through which a local company can be liable for taxes owed by a foreign supplier.

DET3 comment

The initiative taken in late 2018 by Italy and reflected in its 2018 budget is now replaced by a new text aligned to the EU Commission. Despite the Political turmoil affecting this topic, this was a necessary technical measure.

Considering the overall current dynamic and fast changing context, it was clearly to be avoided that each of the EU countries that are firm towards stand-alone solutions while Global solution is built are going ahead with different scopes/definitions. There will be nuances and differences still as every country must run its own legislative process under its local political landscape, but it is important that the base foundation is shared.   

The tax seems to be a “one of its class” that lays in-between corporate tax and VAT, while the Spanish draft has defined it expressly as an indirect tax.

It is likely that the pressure of the EU control on the public finances of Italy will make this time the technical teams accelerating the work to nail the details in a proper legal text in the announced time-frame, but to be seen considering previous experiences in the country. 

Who is surprised about France advancing its Digital Services Tax?

French president Macron measures announced in reaction to the the “gilets jaunes” / “yellow vests” will increase the French budget deficit above the EU required boundary. That is why France might not wait until March 2019 to pass a Digital Services tax in order to get incremental sources of revenue starting from January 2019.
Still hoping to achieve a European horizontal and binding agreement on the Digital Services Tax before March, which was the tight timeframe provided in the recent Franco-German joint declaration, reality is France won’t stay quiet.

The French Finance Minister confirmed France is determined to find unanimity by March at EU level, but if not they will be prepared to act.

The idea is that the French DST will be worded in close alignment to the last version of the EU Directive and forecast is that Government will collect 500 million euros annually through it.

The announced French DST is from one hand a straight deficit control measure and by other hand a clear stand to its strong positioning on this topic since the early BEPs days and before.

Those reading “behind the text” of the recent Franco-German declaration could clearly anticipate that it was in part preparing the ground for this fast local level movement in their country if needed.

By experience in countries like Spain were we have been closely involved and participating in the legislative process, we know that transposing the draft Directive text into “local language” text that properly explain the digital concepts, technology drivers  and respect the local lax taxonomy is a process that takes time and requires tunings in order to avoid unexpected outcomes.

About the international impact of this new unilateral measure, we remit to our recent news published on the EU directives status after the December ECOFIN.

Cross-EU update on digital permanent establishment and SDP concept

EU parliament think-tank published December 7th a briefing on the work on corporate taxation of a Significant Digital Presence (SDP).

It explains the mixed reactions that the March 2018 Directive proposal received from stakeholders. It explains that the recent report by Parliament’s Committee on Economic and Monetary Affairs (ECON) has proposed to widen the scope and reach and requested also an increase in clarity for tax authorities and companies.

The plenary vote on the report happened just a few days ago in mid December and the Members of the European Parliament (MEPs) adopted both its two opinions on the proposals for Council directives on the corporate taxation of a SDP and the DST one by an overwhelming majority.

On the SDP topic, the opinion adopted is proposing to incorporate to the Directive as a taxable service the supply of “content on a digital interface such as video, audio, games, or text using a digital interface”. Their provided example is that this way Online platforms selling digital content such as Netflix, can be taxed.

DET3 Comment

There is a conflict between this MEPs request of widening to include the digital supply of all those types of content, and the request of the Committee of Regions (CoR) to remove from the list of services that could create a SDP those related to “e-books & electronic publications, online newspapers, online news, traffic information and weather reports” (See our CoR opinion summary).

And regardless of what is passed or not, there is also a need to have a one-voiced consistent technical message on this topic at EU institutions level, aligning the digital permanent establishment thresholds of the SDP Directive, with those contained in the last proposed amendments of the EU CCTB, not only on the number and type of users and contracts, but specially in the “Volume of digital content” one incorporated in this last text.
Is the Digital Permanent Establishment the answer to find a path in the complicated international political context? There is agreement on the technical side of a large numer of countries tax administrations about it as the solution to produce a clearer picture of where a company generates its profits.

But we warn and anticipate that practical application of any Digital PE is going to be highly problematic.

Postponed decisions, disagreements & misalignments in the EU Digital Economy Taxation effort after the December 4th ECOFIN

Finance and Economy Ministers held an important policy debate on the proposal to establish a digital services tax last ECOFIN meeting.
A compromise revised text of the March Directive proposal, supported by many countries, was presented, but according to the official outcome released that text did not gain the necessary support.

Ministers examined also the last-minute joint declaration by the French and German delegations inviting the Commission and the Council to:

• Amend and focus its DST directive on a tax base referring to digital advertising targeted at users only (versus the 3 initial digital services subject).

• To submit proposals on minimum taxation of digital economy in line with the work of the OECD, US, Germany and France, not based in taxing revenue but profits.

The joint declaration stressed at maximum to Council the urgency to adopt a legally-binding directive on a DST without delay, and in any case before March 2019.

Interestingly, the joint declaration notes that the DST directive would not prevent Member States from introducing in their domestic legislation a digital tax on a broader base than just digital targeted advertising.
At the light of all the above, the presidency recommended continuing to work on the basis of the latest directive compromise text and the elements of the Franco-German declaration with the aim of reaching an agreement as soon as possible.

In the following 2 days after ECOFIN we saw the publication of the opinion of the European Committee of the Regions on the Digital Economy Taxation topic, DST and SDP directives, proposing additional specific amendments, questioning a number of points and recommending additional actions (*).

There is no agreement yet between all Member states at EU level on the short-term regime, there is misalignment between EU political bodies on some elements and there is no international consensus yet at OECD level on how to respond to the challenges we have on the table since a number of years ago.
As more and more countries in most continents/regions, are considering unilateral measures, mix the international situation (OECD/EU/UN) with those local different pictures, scopes and interpretations on digital economy, add a few segments of post BEPS MLI variances, and it is clear that we are adding a systemic complexity that is against some of the key Digital Economy principles of simplicity and agility and against the instant international business articulation that the “global cloud” enables…..Cloud implementation is moving really fast in organizations of all sizes, so timing is starting to be the critical element of this debate.

Respecting the March deadline and taking unanimous decisions it is one of the key underlying conditions set in the text of the Franco-German “concession” of watering down the DST in scope services and deferring entering into force timeframe.

So, March 2019 for the EU and January 2019 for the OECD expected communication on this topic status and progress on the “minimum taxation” framework are the next high relevance dates.

Despite this difficult general situation, it seems nonetheless that all these turbulences and strong balancing of political interests and trade commerce collateral impacts discussions are generating a level of concrete progress towards reaching preliminary consensus between key OECD countries about the future potential overall framework. Including the US.

To be checked in the OECD January report. But time is starting to be a factor now.

We anticipate that the analysis of the practical implications of the application of any of the long-term solutions in consideration is going to take time, and the fundamental discussion will be around valuing digital value creation, users and data. Everything will likely end up pivoting around.

Unless the modus operandi were to be heavily changed to an agile collaborative streamed mode, it is not going to be easy to have measures implemented by the date some EU Member States are requesting it. Will these countries be satisfied with a general framework?.

(*) We refer to our summary of the European Committee of the Regions opinion contained in this same “last-news” section of our website.