Good morning everyone,
Today, the Commission is launching a new EU agenda for fair taxation of the digital economy.
We have adopted a Communication that describes the challenges Member States are facing when taxing the digital economy and trying to ensure that profits are taxed where they are earned. I would like to thank Commissioner Moscovici and his team for the good cooperation on this file.
The European Union needs a common and coherent approach when taxing the digital economy. The approach must be in line with our aim to complete the Digital Single Market, to support growth and ensure fair and effective taxation.
The question is becoming even more urgent as a number of EU countries have already introduced unilateral measures. Divergent national approaches can fragment the Single Market and increase tax uncertainty. They can also destabilise the level playing field and open new loopholes for tax abuse and corporate tax avoidance.
In his State of the Union speech last week, President Juncker called for fair taxes for the digital industry.
The Commission wants to apply a simple principle: companies should pay tax where their real economic activity is taking place. In other words, we need to ensure effective taxation.
Profits earned in the EU should be taxed in the EU. This is the way to prevent losses to the budgets of European countries.
This principle must be true both for companies that have traditional shops and employees on European soil. And also for digital businesses that make high profits in Europe without necessarily having a physical presence here.
In fact, traditional businesses are increasingly operating online. Take for example, the retail sector. Between 2008 and 2016, revenue by the top 5 e-commerce retailers grew on average by 32% per year. During the same period, revenue in the entire EU retail sector grew on average by 1% per year.
Therefore our thinking applies not only to taxing digital companies, but more broadly to dealing with tax in an increasingly digitalised economy.
So what do we propose?
At EU level, the Common Consolidated Corporate Tax Base proposal offers a basis to address key challenges, for example by further adjusting permanent establishment rules. We propose to examine enhancements to these rules to ensure that they effectively capture digital activities. And we welcome the work already done by the Estonian Presidency in this regard.
However, this may take time, given its complexity. And the digital economy will not stop growing in the meantime.
Therefore, we will also look at other short-term options to tackle specific tax challenges.
Today's Communication offers several possible options, such as an equalisation tax, a levy on internet ads or withholding tax on internet transactions.
It is clear that there are still a lot of questions to be answered before we reach meaningful solutions.
Of course, we are aware that a global answer is the best. This is why the EU is already working with the OECD and the G20 on these issues. What counts now is that the EU speaks with one voice in the international arena, and we will work to arrive at a common EU position on this issue by December.
However the EU must also be prepared to act in the absence of adequate global progress. In the coming months, we will, together with the Member States, carefully analyse the different options. The next immediate step is the Digital Summit in Tallinn next week.
As a result of this process, our ambition would be to come with legislative proposals by Spring 2018.