The digital economy is rarely recorded and taxed in international tax law. Especially in the sales state, digital services are not or hardly taxed. This is due in particular to the fact that the concept of permanent establishment in Art. 5 OECD-MA requires a permanent business establishment. However, the digital economy is characterized in particular by the fact that companies are not actually present in the sales market. In 19 countries, including France, Austria and Italy, the digital tax already exists. In Germany and especially at the level of the EU and OECD, there is currently discussion about whether it should be introduced. This digital tax is not only relevant for the big GAFAs (Google, Amazon, Facebook, Apple). Rather, many digital companies are included. Since conventional business models also offer progressively digital services, it is important to ensure that these are not also subject to the digital tax. We present how a digital tax could be designed and then discuss its consequences and effects.

International tax model with license fees: Google, Amazon, Facebook & Apple

1st Definition of the Digital Tax

The introduction of a digital tax is initially only intended as a transitional solution until the final renewal of international tax law with regard to digital services. In this context, at the level of the OECD and the EU, the introduction of a global minimum tax on corporate profits and the recognition of a virtual permanent establishment as a final solution are discussed. Digital taxes in the narrower sense are those that only look at the turnover of digital companies and ignore whether the companies there also have a tax nexus through physical presence. Thus, exceeding certain turnover threshold values alone is a prerequisite for the new control event. However, it is irrelevant whether the company is a partnership or a corporation or whether the company is actually physically present in the state. A digital tax in the broad sense deals with the change of the tax nexus of the existing tax laws.

2nd design of the digital control

The planned digital tax is to link to the gross proceeds of a company from the provision of the following digital services.

2.1 Covered services

Includes the placement of advertising on a digital interface aimed at the users of this interface (Art 3 I lit. a DST-RL proposal). Among other things, the provision of an interface that favours finding and interacting with other users and enables the sale of goods or services directly between users also applies as such a digital service (Art 3 I lit. b DST-RL proposal). In addition, the transmission of collected user data, which is generated from the activities of the users on digital interfaces (Art 3 I lit. c DST-RL proposal). Users are natural persons and companies. Interfaces in this context are any type of software that the user can access. This includes, among other things, websites and apps.

2.2. Services not included

The proposal does not include some services. This includes, for example, the provision of a digital interface if the sole or main purpose is to provide digital content to users. Such services are, for example, music and TV streaming services. This is justified by the fact that user participation plays only a minor role with regard to value creation. The proposal does not include the provision of communications and payment services. This includes, for example, PayPal or e-mail providers. The reason for this is that the users of these services can only contact each other if they have already made contacts in another way. In addition, the proposed digital tax does not apply to intra-group services.

2.3 Place of taxation

The returns of digital services are taxable only if they are achieved in the EU: The decisive factor is in which Member State the returns are achieved. For this purpose, it is crucial whether the user of the taxable service is established in a Member State during the entire taxation period. The location depends on the Member State of the device through which the user accesses the digital interface. The control substrate is then distributed among the states where the respective services are provided.

Applicability of the digital tax

The digital tax also only applies to digital services if the company cumulatively exceeds certain thresholds. First, the total global income reported for the financial year must have a turnover of 750 million. exceeding the euro. It is irrelevant from which services the income comes. It can therefore also be based on non-digital services. In addition, the revenue generated by the company in the Union in the financial year must exceed EUR 50 million. Both factors are justified by the fact that the access to taxation only appears justified if the company is significantly present in a country on the basis of its size and the amount of the turnover. Only in this case is the infrastructure of the state sufficiently exploited. But smaller companies and start-ups should be protected from the digital tax. Due to the still low user participation, these companies cannot enjoy such far-reaching advantages as the large companies.

The tax base of the digital tax is the total gross income. Thus, it refers to the proceeds from the provision of services minus VAT and taxes directly linked to turnover. A tax rate of 3 % is levied on it. The digital tax is due on the next working day after the expiry of the relevant tax period. The service provider must register in the tax collecting Member State as part of the collection procedure. The State divides the tax base between the individual Member States as just mentioned.

Currently, there is no provision for the digital tax to be deductible from the corporate tax as operating expense. This seems questionable due to the operational initiation of the digital tax and is motivated solely for fiscal reasons. Another significant problem is that, unlike VAT (see § 15 UStG), no deduction of VAT is provided for. As a result, the actual burden may well exceed 3 % if the 3 % is levied at each stage of a product chain but the individual companies cannot recover the input tax.

Existing digital control systems

Currently, the digital tax already exists in some countries. Some models are shown as examples.

5.1 France

In France, the digital tax applies only to companies whose annual global turnover is 750 million. exceeds EUR 25 million in France. In France, however, sales are limited to purely digital services. Conventional services are therefore not considered when calculating the turnover level. Gross income before VAT deduction is taxed at 3 %. However, the digital tax levied reduces the tax base of the French corporate tax as a business expense.

5.2 United Kingdom

In the United Kingdom, a 2% tax is levied on revenue generated by operating a social media platform, Internet search engine or online marketplace. However, the prerequisite is that the services are used by British users and the turnover worldwide is 500 million annually. GBP and GBP 25 million in the UK. However, there is an allowance of 25 million. GBP.

6th Outlook – Is there actually a digital tax

The main problem with the current design of the digital tax is that it cannot be sorted into any particular tax type. Characteristic of a so-called indirect tax (for example, sales tax) is that taxpayers and economic taxpayers are different persons. In order to ensure that the consumer of the goods actually bears the tax, the deduction of VAT shall apply to indirect taxes. However, this possibility does not exist at the digital tax. The digital tax could therefore be a sales tax on the one hand, but also an income tax on the other. In the case of such hybrid taxes, the BVerfG has to decide on the nuclear fuel tax that the federal government and the federal states do not have their own tax invention right. Since the digital tax is not clear of a certain type of tax. 106 GG could exceed the limit of tax legislation competence.

There are also practical concerns regarding the implementation of the digital tax. It can only be implemented if individual states work closely together. In addition, it must be sufficiently determined to which State which income can be attributed. Furthermore, of course, every state has the interest that many returns are attributed to it. It therefore seems questionable how an acceptable consensus is found.