Taxing digital activities - II. Taxing tools of relevant digital activities.

Author: Paul Verhaeghe

  1. The main issue in taxing digital activities is the technical easiness for providers in dislocating activity (offered) or income (collection) from the country where the profit tax base is economically triggered (originated).

As said above, the criteria for Permanent Establishments stipulated in existing tax treaties do not allow to allocate digital activities that don’t have a minimal form of physical presence in the country where the profit is originated.

Without Permanent Establishments, such activities escape various measures that seek to amend tax engineering that reduces the profit tax base. The lack of a Permanent Establishment will result in these fiscal measures not applying to such activities.

  1. Under European direct tax rules, no definition of digital economy, digital companies or relevant digital activities exists. Taxation of corporate income is a competence that remained with the Member States. The considerations[1] of the Council Directive (EU) 2016/116 of 12 July 2016, laying down rules against tax avoidance practices that directly affect the functioning of the internal market, point in general at the necessity of anti-avoidance measures to apply equally to resident, non-resident and third country competitors.
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