Digital Services Tax – EBF comments on the EU proposal

15 November 2018

Executive summary

The European Banking Federation recognises that the digitalisation of the economy questions the standard international taxation principle based on the concept of “Permanent Establishment”, which requires a physical presence.

Such a challenge definitely needs to be addressed in a consistent and coherent way and from a global perspective. The efforts of the OECD in order to elaborate comprehensive solutions need to be supported much more than short term reactions with possibly unintended negative consequences for the European economy.

European banks are fully taxed according to prevailing international standards and, due to applicable regulations, their taxable profits arise where the real economic activity is undertaken. Any additional taxes for European banks would eventually affect their ability to compete globally and to finance the European economy and households.

It is the EBF’s understanding that Article 3(4)(b) of the proposed Directive on the common system of a digital services tax (DST) on revenues resulting from the provision of certain digital services contains an exemption for “the supply by a trading venue or a systematic internaliser of any of the services referred to in points (1) to (9) of Section A of Annex I to Directive 2014/65/EU (MiFID)”. However, we are concerned that this exemption appears to be limited in scope, especially since it applies only to trading venues that are regulated under MiFID. Consequently, any venues which are not regulated by MiFID, including all third country venues, would remain under the scope of the DST. This would appear to bring into scope non-MiFID instruments where they are traded via such venues.

If a DST were introduced in the EU as an interim measure, then a clear exemption must be provided not only ad hoc for payments, trading venues or crowdfunding, but for all types of financial and banking services. In respect of the latter, consideration should notably be given to the list of activities subject to mutual recognition in Annex 1 of the CRD IV. We urge the Council to carefully consider the wording of this exemption to avoid any legal uncertainty and ensure that it is future-proof.

As an alternative for ensuring that only large digital service providers would be subject to the DST, the EBF recommends that the calculation of the thresholds should only take into account the activities and commissions targeted by the taxation, and not the global turnover of companies.

EBF contact:

Roger Kaiser, Senior Policy Adviser Tax & Crime, r.kaiser@ebf.eu, +32 2 508 37 11