A ‘virtual Permanent Establishment’
The Estonian presidency of the Council of the European Union will propose amendments of the definition and concept of Permanent Establishment (‘PE’). The document which has been leaked and is reported by Reuters will be discussed at the informal meeting of the European finance ministers on 15 – 16 September in Tallinn, Estonia.
Under the Estonian presidency proposal, the income of multinational companies will be taxed in the countries where value is created, rather than on the basis of tax residency rules. The concept of a ‘virtual’ PE would establish taxable presence for multinational companies in the countries in which they operate. Virtual PE would be considered a sufficient taxable presence in order to levy corporate income tax.
This EU proposal comes just as OECD has announced that the PE definition in the context of BEPS Action 1 and the taxation of tech groups is open for discussion. This proposal is coupled with the recent EU initiatives to revive the CCTB/ CCCTB proposals for corporate taxation based on formulary apportionment in Europe.
The Estonian presidency is mindful of the ambitious nature of this proposal and will therefore approach other EU member states informally next weekend. If there is consensus the proposal could be formalised at the ECOFIN Council meeting in December.
EU to consider taxing US tech groups on basis of turnover
The agenda of the informal EU finance ministers meeting in Estonia is likely to see another ambitious proposal for corporate taxation of US tech groups in the European Union, according to piece which appeared in the Financial Times on Friday 9 September.
The article is only available behind the FT paywall but the opening two paragraphs state:
“Paris and Berlin are mounting a joint offensive to tax internet giants such as Google and Amazon based on revenues generated in EU countries, a change that would wreak havoc with many technology groups’ business models in Europe.
The initiative, launched by Bruno Le Maire, French finance minister, and set to be presented to all 28 EU finance ministers next week, would overhaul national tax codes to include an “equalisation tax” for tech companies that would collect levies based on national turnover. Brussels would propose an EU-wide plan to be approved by member states unanimously.”
VAT is levied essentially at the point of sale (and at rates of 20% and above; c.f. UK corporation tax rate) so this isn't as revolutionary as suggested.