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European Commission

Algirdas Šemeta

Commissioner responsible for Taxation and Customs Union, Statistics, Audit and Anti-fraud

Digital Taxation: An EU reflection in a global context

Seminar on digital economy

Paris, 9 October 2013

Ladies and Gentlemen,

It is a great pleasure to be here in Paris to discuss what I believe is one of the most pressing issues facing us in international taxation today:

What is the best way of taxing the digital economy? And how do we get there?

Taxation challenges

The taxation systems which we rely on today were designed at a time when computers were still a futuristic idea.

When the current structures for taxation were put in place, nobody could have conceived of a global economy driven by online services and intangible assets.

Therefore, we should not be surprised that the digital sector sits like an ill-fitting jigsaw piece in our overall taxing environment.

To integrate the digital economy into our tax systems – or to adapt our taxation to the digital economy – will require more than a few tweaks.

However, this is easier said than done, and the pace at which the digital economy is growing does not allow time for protracted reflections without any interim action.

So, our work should begin by addressing what I see as the most pressing questions:

  • How can we ensure that our tax systems do not hamper the potential of this sector in the European market?

  • Why is it necessary to ensure that the growth of the digital economy does not undermine fair and efficient taxation?

  • And how to progress towards sustainable solutions.

Facilitating growth through taxation

Turning to the first question, there is no doubt that the digital sector is going to be the life-blood of our future prosperity.

Within a very short space of time, digital companies have occupied an incredibly important place in the overall economy.

Moreover, traditional companies increasingly rely on I.T. and e-Commerce for their everyday work. This is a trend that will only continue.

If the EU is to survive as a global economic player through the 21st century, the digital economy is something that we must embrace and encourage. We must facilitate e-business and remove obstacles for internet companies, and create a true Digital Single Market.

As always, when it comes to facilitating businesses in our Single Market, taxation is a crucial element.

The primary focus of EU tax policy has been to break down the tax barriers to cross-border trade, and ensure that taxation contributes to a business-friendly environment in the EU.

Our work in this area now needs to be broadened in scope, taking on board the specificities of digital companies too.

In this respect, I can already hold up a few positive EU initiatives.

Specifically for electronically delivered services, we have developed major simplifications to be implemented from 2015, which should encourage cross-border expansion for start-ups within the EU.

Meanwhile, on 1 January this year, new invoicing rules for VAT entered into force, saving businesses up to €18 billion a year in reduced administration costs.

I will be proposing, in the coming weeks, a standard VAT declaration which will further simplify procedures for digital and non-digital companies alike.

And, as you know, the Commission is currently analysing how the EU should proceed on the question of VAT reduced rates.

The progress is not as fast as I would like, because of the difficulty in reaching unanimous agreement on these sensitive subjects. But we have taken steps in the right direction. Now we just need to pick up pace.

Preventing Tax Abuse

Turning now to my second question, I believe it is important to ensure that the digital economy fairly and efficiently contributes to public revenues.

Taxation is based on a social contract.

As just outlined, we offer businesses all the benefits of the Single Market, and work to reduce any obstacles to their cross border activities.

In return, these businesses need to make their fair contribution to public finances – just as all other taxpayers must.

This is as true for digital companies as it is for traditional businesses.

We have all seen the headlines and read the reports of certain multinationals benefitting enormously from Member States' markets, while making little or no contribution to the public purse.

This is unacceptable, and unsustainable.

On one hand, it distorts competition between the actors themselves.

It puts the internet giants at a distinct advantage over their non-digital competitors, and also over smaller e-companies trying to break into the market.

On the other hand, it undermines the revenue-raising capacities of countries.

Given the ever increasing importance of digital within the overall economy, if Member States are to have healthy tax bases in the future, they need to be able to rely on revenues from this sector too.

As we well know, corporate tax avoidance is not a problem limited to just the titans of the digital world. It cuts across all sectors, in all countries.

But digital actors bring a new and particular dimension to it.

The very nature of these companies – global, with an unmatched reliance on intangibles – together with tax rules designed in a pre-digital era, make it even easier for them to avoid taxes.

The way ahead

Let me now say a few words on my final question, concerning the way ahead.

As I said, we need to re-think our current rules or at least adapt them to today's digital reality.

And the solutions to the issue we discussed this morning must be sought primarily at global level.

In this context, I warmly welcome the G20's endorsement of the BEPS Action Plan.

The OECD task force on digital economy has important work to fulfil and the Commission is ready to be an active contributor to this work.

All energy must now be put into delivering effective results through BEPS.

By this I mean reviewing concepts such as permanent establishment, transfer pricing or criteria for source taxation that, once implemented, will bring improvements to the international taxation environment.

Meanwhile, at EU level, our work to clamp down on corporate tax avoidance won't stop.

Before the end of this year, I will be proposing to improve the European tax framework by amending the Parent-Subsidiary Directive. And I will call for progress on the interest and royalties directive pending on the table of the Council.

In addition, the Commission will continue to use all tools at its disposal – including State Aid rules and Business taxation Code of Conduct – to ensure that Member States aren't facilitating abuse tax practices of multinationals.

Member States themselves also have a responsibility to take action.

They should implement our Recommendations to combat evasion and avoidance, in particular the proposed General Anti-Abuse Rule.

They should also work with great commitment and ambition on a number of proposals and notably the Common Consolidated Corporate Tax Base (CCCTB).

This directly responds to the need for simpler tax systems for businesses, fairer allocation of taxing rights, and taxation on the basis of economic substance, which we need in the digital economy.

We also have to continuously engage with key players in the digital economy – both small and big, and listen to them when developing out tax policies.

To follow on your debate this morning, it is in this context that I would like to frame our reflection on the need for specific tax schemes for the digital economy.

I know that you did a lot of research in France on this issue.

On our side, we do not want to rush to conclusions at this stage.

However, it is a debate that we cannot neglect and which deserves more attention at EU level.

I intend to launch a reflection group to gather high level expertise from digital businesses, tax experts and academics, in order to frame a way ahead on this delicate issue.

Let me now conclude.

In addressing taxation in the digital economy, we need deep and open discussions.

We are venturing into previously unexplored territory.

So all ideas should be put on the table, and none should be dismissed without fair consideration.

But equally, we must also be mindful against any decisions that could inadvertently harm EU competitiveness.

Digital companies must be prepared to play by EU rules in order to benefit from our 500 million consumers. And this means paying their fair share in taxes. But we cannot put the entire burden at their feet.

It is the responsibility of governments to ensure a clear, coordinated and watertight international tax framework, which sets a level playing field for all businesses.

If our tax rules today are no longer appropriate for the economy we live in, then changes must be made – at global, EU or national level.

In this respect, today's conference has given very welcome input into the key challenges that need to be addressed.

I would like to thank you for organising this excellent event, and look forward to close collaboration on these issues in the months ahead.

Merci de votre attention et bon après-midi.

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