The European Commission has published a report into tax and the digital economy.

There are a number of interesting conclusions included in the report including the following.

  • the digital economy does not require a separate tax regime, though current rules may need to be adapted to respond to the on-going digitisation of the economy;
  • digitisation facilitates cross-border business so the removal of barriers to trade, including tax barriers, and creating a more favourable business environment through neutral, simplified and coordinated tax rules remains very important;
  • the upcoming move to a destination-based VAT system for digital services is commended, along with the simplification that the Mini One Stop Shop (MOSS) should bring for businesses. The report recommends that this could be further expanded to all goods and services (in business-to-consumer transactions);
  • to ensure neutrality and provide a level playing field for EU business, the report recommends the removal of the VAT exemption for small consignments from non-EU countries.
  • in the area of corporate taxation, the base erosion and profit shifting (BEPS) project will be fundamental to tackling tax avoidance and aggressive tax planning globally. The report strongly recommends that Member States take a common position to ensure a favourable outcome for the entire EU;
  • priority areas for the EU within the BEPS project, according to the report, are countering harmful tax competition, revising transfer pricing rules and reviewing the concepts for defining and applying taxable presence;
  • the previously floated Common Consolidated Corporate Tax Base may provide an opportunity for the EU to expand on new international standards (such as transfer pricing profit split methods) and achieve additional simplification within the EU; and
  • more radical reforms of the tax system could also be looked at in the longer term, including a destination-based corporation tax.

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