On November 29th 2018, the EU Presidency sent to the Council the revised proposal for a Directive on the common system of a digital services tax on the revenue from certain digital services, that was made public yesterday before the ECOFIN ministers meeting, where we also knew the last minute agreement reached before the meeting between Germany and France on the topic (the “Franco-German joint declaration” (*).
This last movement has been perceived by some as a relevant step back and by others as the potential enabler of a final consensus and it will likely affect the work that was done in developing the Directive draft, as it brings to the negotiation table an important cut down of the number of services in scope.
In any case, the new Directive text updates the March draft and it is considered a compromised agreement text accepted by a good number of countries. Presidency mentions that it is time then for the political segments of the EU to take a clear stance on this now.
As we have commented on the previous Directive draft, and published our contribution to the public comments period in our reports section, we focus now on the novelties and differences we see as relevant in the text at first glance:
- User definition: includes now not only any legal person, but any “legal arrangement, whatever its nature is, that accesses a digital interface with a device”.
- Target advertising definition incorporated: Confirms that it is about digital promotional communications targeted at users of a digital interface based on data collected on them. And not generic digitally displayed advertising. Burden of proof to support undeclared “non-targeted” advertising is now on the taxable person.
- Removal of the previous complex references to financial systematic internalizers and crowdfunding schemes, to be replaced by straight “regulated financial service” or “regulated financial entity”, concepts that are included in the definitions article and that are subject to authorization and supervision under “any” harmonization measure adopted by the EU, including providers subject to equivalent non-EU supervisory measures.
The supply of regulated financial services by regulated financial entities are not subject to the tax.
- Sales of Data generated with user participation: sales of data captured with sensors (IOT) or sale of data by a regulated financial entity are also clarified as not subject in the current text.
- In order to qualify for being a tax payer, thresholds remain at group level, whereby now in the new text the taxable person will be every individual entity of the group providing taxable services and not the group as a whole.
It will be possible nonetheless for one single entity of the group to file one consolidated return on behalf of all the liable taxable entities (MOOS equivalent).
- Under the new text, non-EU established groups, that have several companies in EU member states who become liable, could see any of these EU based companies being required by a Member State of the other EU based entities to pay in that country on behalf of their local failing company.
- Timeframes for Directive implementation: Transposition timing limit is moved further from December 2019 to December 2021 in this draft. Entry into force, from January 1st 2020, to January 1st, 2022.
(*) The impact and consequences of the Franco-German declaration will be subject to a separate analysis in another post/article coming soon, but please see the EU Digital Services Roadmap we publish today, incorporating the potential effects of such declaration with a visual perspective.
