SAU, Alm.del - 2017-18 - Bilag 202: Begrundet udtalelse fra det hollandske 2. kammer (repræsentanternes hus) og det maltesiske repræsentanternes hus om KOM (2018) 147 og 148

Skatteudvalget 2017-18
SAU Alm.del Bilag 202
Offentligt

REASONED OPINION

OF THE

HOUSE OF REPRESENTATIVES OF MALTA

Proposal for a Council Directive laying down rules

relating to the corporate taxation of a significant digital presence COM (2018) 147

and

Proposal for a Council Directive on the common system of a digital services tax on

revenues resulting from the provision of certain digital services COM (2018) 148

1. Aim of the Commission Proposals

This proposal package aims at addressing the issues raised by the digital economy by setting

out a comprehensive solution within the existing Member States' corporate tax systems. It

provides a common system for taxing digital activities in the EU which properly considers the

features of the digital economy. This proposal lays down rules for establishing a taxable nexus

for digital businesses operating across border in case of a non-physical commercial presence.

New indicators for such a significant digital presence are required to establish and protect

Member States’ taxing rights in relation to the new digitalised business models. This proposal

sets out principles for attributing profits to a digital business which rely on intangible assets.

2. Commission justification on compliance with the principle of subsidiarity

According to the first

proposal’s legal basis (Article 115 of the Treaty on the Functioning of

the European Union), the Council acting unanimously and according to a special legislative

procedure, and after consulting the European Parliament and the European Economic and

Social Committee, shall issue directives for the

approximation

of such laws, regulations or

administrative provisions of the Member States directly affecting the establishment or the

functioning of the internal market. Despite the Commission’s aims to eradicate distortions in

the functioning of the internal market, the Commission also aims to rein in unilateral measures

that have been, or are threatened to be, adopted by several Member States to address the same

issues, which could create confusion and fragmentation with the European Single Market. It is

already clear that not all Member States are aligned with the proposed measures. Given that

European legislation relating to tax can generally be passed only with unanimous consent, the

nature and timing of the successful enactment of this package remains uncertain.

The Commission’s proposal rests on the principle that profits should be taxed where value is

created, but with a significant twist: While the current rules largely allocate to a country, the

right to tax the profits of a business on the basis of the physical presence that the business

maintains within its borders

— which must be significant enough to amount to a “permanent

establishment” —

the proposal would extend this test to include, with respect to the provision

of digital services, the existence of a “significant digital presence.” In substance, this means

that where a non-resident

business provides “digital services” through a “digital interface” to

users “located” in a European Member State, and this business maintains a “significant digital

SAU, Alm.del - 2017-18 - Bilag 202: Begrundet udtalelse fra det hollandske 2. kammer (repræsentanternes hus) og det maltesiske repræsentanternes hus om KOM (2018) 147 og 148 - digital beskatning

presence”

in that Member State, the profits derived through this significant digital presence will

be taxable in the Member State in question.

The second proposal’s legal basis falls under Article 113 of the TFEU. This provision enables

the Council, acting unanimously in accordance with special legislative procedure and after

consulting the European Parliament and the EESC to adopt provisions for the harmonisation of

Member States’ legislation concerning other forms of indirect taxation to the extent that such

harmonisation is necessary to ensure the establishment and functioning of the internal market

and to avoid distortion of competition.

3. Evaluation on the compliance of the principle of subsidiarity

The House of Representatives of Malta notes that the principles of subsidiarity and

proportionality become relevant where the Union and the Member States share competence in

a sector in terms of the Treaty on European Union and the Treaty on the Functioning of the

European Union.

The House of Representatives of Malta retains that the proposed system of a Digital Services

Tax

infringes the principle of subsidiarity

for the following reasons:

1. The aim of the Proposal can be better achieved through long-term national solutions

coordinated at an international level rather than through the proposed European short-

term measures. It is believed that the suggested

interim

measures impinge on established

fundamental tax concepts and create more issues than solutions.

a. The legal basis of the Proposal, which seeks to approximate laws in relation to

corporate taxation is questionable given that the treatment proposed will

distinguish between entities established in EU Member States and entities

established in third countries which do not have a double taxation agreement

with an EU Member State, and entities established in third countries which

have double taxation treaties with an EU Member State in force. The

unavoidable result of such approach is that of a difference in treatment afforded

between Member States and third countries and Member States themselves

given that Member States have different treaty networks with third countries.

b. The Proposal impinges on fundamental tax concepts, such as that of the

permanent establishment, which is a key concept in the OECD Model Tax

Convention on Income and on Capital, which remains the most authoritative

source used by countries when negotiating conventions with each other.

2. The House of Representatives holds that the research and reports provided by the OECD

are merely guidelines provided for an international approach, however, the Commission

in this proposal goes beyond its scope and has thus decided to take action. This however

would imply impinging on

the Member States’ tax competence and

prove that there are

no strong arguments in terms of subsidiarity.

The Impact Assessment fails to meet the requirements of the principle of subsidiarity

for the following reasons:

SAU, Alm.del - 2017-18 - Bilag 202: Begrundet udtalelse fra det hollandske 2. kammer (repræsentanternes hus) og det maltesiske repræsentanternes hus om KOM (2018) 147 og 148 - digital beskatning

a. The Commission declares that the Proposal aims to steer discussions at

international level for long-term reform. Whilst one could understand the

political motivations of such an approach, it is believed that such aspects ought

to be subservient to evidence based policy action. Moreover, the Commission

states that this policy framework will be mirroring the changes in the OECD

Model Tax Convention at international level, thereby rendering the current

proposed measures redundant.

b. Illustrations of possible unilateral action by Member States as a justification for

taking legislative action appear pertinent for the Digital Service Tax initiative,

but seem to have little relevance for this initiative. This is more so when

considering that the changes to the permanent establishment provisions are

clearly part of the international tax framework and require international uptake

for their effectiveness, and the fact that OECD Base erosion and profit shifting

(BEPS) Inclusive Framework already aims towards a consensus based solution

by 2020.

c. The BEPS arguments are not constant throughout the Impact Assessment and

although used to justify the need for a Directive, it is also recognised that

changes to the permanent establishment provision (and profit attribution rules)

is a fundamental change to the existing international rules which go beyond

anti-BEPS measures. In this regard, whilst the baseline scenario of the Impact

Assessment assumes Anti-Tax

Avoidance Directive’s transposition, the

proposed text hardly elaborates why the application of these rules (within the

EU via ATADs, but also within third countries which are still coming on

stream) would not be pertinent developments to monitor before proposing this

Union action. It is pertinent to note that as highlighted in

the OECD’s interim

report, there is already “preliminary evidence that implementation of the BEPS

package more generally is having an impact”.

d. It disregards any consideration on the consequential impacts that the extended

permanent establishment would have on other distributive rules typically found

within Member States’ double taxation treaties.

e. The approach taken within the Proposal does not take cognisance of the needs

of smaller markets.

The Maltese House of Representatives recognises that there is a common interest in maintaining

a coherent yet relevant set of international tax rules in view of the digitalisation of the economy,

and it is ready to engage in the discussions which will ensue on the Commission proposals.

However, the Maltese House of Representatives has a clear preference to go for solutions at the

international level which are globally applicable. For this reason, the House of Representatives

supports working towards a consensus-based solution in the OECD BEPS Inclusive

Framework.

Furthermore, given the global aspect of the digital economy, it is important to avoid duplication

of work with the OECD and solutions in this area should ideally be found on a broader scale

and if solutions are found, these should serve as input into broader OECD discussions. It must

be stressed that unilateral EU measures may damage EU companies, thus it must be kept in

mind that a risk of damaging competitiveness of EU companies may also be present.

SAU, Alm.del - 2017-18 - Bilag 202: Begrundet udtalelse fra det hollandske 2. kammer (repræsentanternes hus) og det maltesiske repræsentanternes hus om KOM (2018) 147 og 148 - digital beskatning

4. Recommendation

For the reasons outlined above, the House of Representatives of Malta holds that less

intrusive choices can lead to the achievement of the objectives behind the common system

of a mechanism, both in the short term as well as in the long term, without interfering

with the principles of subsidiarity and proportionality. The House of Representatives thus

believes that the:



Proposal for a Council Directive laying down rules relating to the corporate taxation

of a significant digital presence (COM (2018)147); and the



Proposal for a Council Directive on the common system of a digital services tax on

revenues resulting from the provision of certain digital services (COM (2018) 148),

do not satisfy the subsidiarity principle.

The House of Representatives of Malta has decided to object to the Proposals and to

deliver this reasoned opinion in terms of the procedure defined in Article 6 of Protocol

No. 2 concerning the Application of the Principles of Subsidiarity and Proportionality,

annexed to the Treaty on the European Union and to the Treaty on the Functioning of

the European Union.

Anġlu Farrugia

Speaker

House of Representatives of Malta

May 2018