Digital Taxation: the ‘new’ kid on the bloc?

With ever-increasing digital trends, the digital economy continues to take a larger share of the overall world economy. It therefore came as no surprise when the incoming EU Single Market Commissioner, Thierry Breton, held that, despite the likely pullback of the United States from the OECD talks on a unified digital taxation, the Commission will still push forward and discuss the introduction of such a tax within the Internal Market.

The Commission had initially proposed to apply a 3% rate to online advertising, digital intermediary activities (including special platforms or e-commerce) and the sale of data. In a bid to reach consensus, the proposed tax was narrowed to simply cover online advertising. With players such as Ireland and Denmark still citing problems related to double taxation, the EU had to concede, while still stating that the momentum gained will help reach international consensus on long-term solutions.

The OECD is overseeing international negotiations to forge a new international tax system that encompasses this digital tax. Growing anger over tax avoidance by multinational digital businesses has forced the OECD’s hand in order to take a stand. Many digital businesses have customers in a country without having any physical presence, while deriving most of their income from intangible assets, leading to a situation where there is minimal or no taxation on profits from such activities.

Digital taxation issues have been discussed for a number of years. In the Base Erosion and Profit Shifting (BEPS) action plan, the OECD identified the tax challenges that the international community faces due to an increasingly digital economy. With no international standard in place, individual countries have started taking unilateral measures. France, being one of the most notable drivers of this digital taxation, has introduced such a tax, but has stated that it would be removed if there is international agreement.

On the 9th of October, the OECD published a proposal for public comment on the allocation of taxing rights and profits in this ever-growing digital economy. The European Union has now started to conduct work in order to present the EU position in the report, which is due by mid-2020.

Nonetheless, without an efficient system for eliminating double taxation, doubt will remain as to the effectiveness of the OECD solution. What is however likely is that digital taxation will be introduced to the international community since there is a very clear intention to abandon the longstanding physical presence standard for taxation in favour of digital presence.

Legal Associate – Business Development

Dr. Jacob Daniel Portelli

Jacob joined E&S Group as a legal trainee in March 2018. Prior to joining E&S Group, Jacob had interned at a leading law firm in Malta, assisting in criminal, family and civil law matters. Jacob holds a Bachelor of laws with Honours and a Master of Advocacy degree from the University of Malta. Jacob completed his studies with a legal paper on Investor Protection in Financial Services. He has also completed a Master’s degree in International Business and Corporate Finance Law at the Liverpool John Moores University with a dissertation on Anti-Money Laundering Legislation and Cryptocurrency within the European Union. Jacob has been greatly involved in student organisations, previously occupying the role of President of the Malta Law Students’ Society, Education Commissioner of the National Students’ Council and the Faculty of Laws Student Representative. Jacob was also a Board Member of the Refugee Appeals Board. Jacob is now focusing on client relations and business development to help maintain a holistic relationship between E&S and its clients.

Jacob is fluent in English and Maltese.

Phone:+356 2010 3020


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