SAU, Alm.del - 2020-21 - Bilag 118: Kommissionens foranalyse til forslag om indførelse af en skat på digitale tjenester

Skatteudvalget 2020-21
SAU Alm.del Bilag 118
Offentligt

Ref. Ares(2021)312667 - 14/01/2021

INCEPTION IMPACT ASSESSMENT

Inception Impact Assessments aim to inform citizens and stakeholders about the Commission's plans in order to allow them to

provide feedback on the intended initiative and to participate effectively in future consultation activities. Citizens and

stakeholders are in particular invited to provide views on the Commission's understanding of the problem and possible

solutions and to make available any relevant information that they may have, including on possible impacts of the different

options.

ITLE OF THE INITIATIVE

EAD

DG (

RESPONSIBLE UNIT

)

IKELY

YPE OF INITIATIVE

NDICATIVE

LANNING

DDITIONAL

NFORMATION

Digital Levy

DG TAXUD Unit D4

Legislative proposal

Q2 2021

–

The Inception Impact Assessment is provided for information purposes only. It does not prejudge the final decision of

the Commission on whether this initiative will be pursued or on its final content. All elements of the initiative

described by the Inception impact assessment, including its timing, are subject to change.

A. Context, Problem definition and Subsidiarity Check

Context

The European Commission has set out strategic objectives on how to shape Europe’s digital future and to help

ensure that Europe is fit for the Digital Age. Technological advancements and digitalisation are profoundly

changing the way we work, do business, how people travel, communicate and relate. These changes give rise to

innovation, growth, and new business models, but also important challenges. The COVID crisis has been a

catalyst and accelerator of change, hastening the transition towards a more digital world and triggering important

changes in behaviour that could have lasting effects.

Against this backdrop, the EU needs a modern, stable regulatory and tax framework to appropriately address the

developments and challenges of the digital economy. Recently, the Commission adopted the Digital Services Act

package, which aims at better protecting consumers and their fundamental rights online, and at promoting fairer

and more open digital markets for everyone. This new proposal covers digital services, including social media,

online market places, and other online platforms that operate in the European Union. While digitalisation can

increase productivity and consumer welfare, and should thus be fostered and nurtured, it is also of paramount

importance to ensure that digital companies contribute their fair share to society, since a prolonged unequal

distribution of rights and responsibilities undermines the social contract.

Work is ongoing at the G20 and OECD level to find a global solution that can support a reform of the international

corporate tax framework in order to address some of the challenges related to the digitalisation of the economy. A

number of elements remain to be agreed, but parameters indicate that the OECD agreement will focus on large,

multinational enterprise groups and a limited number of pre-defined activities linked to digitalisation, possibly in a

first step. In the absence of a global agreement, some Member States have in the meantime introduced certain

temporary tax measures affecting businesses that are part of the digital economy.

In its

conclusions of 21 July 2020,

and in view of a need to support the EU’s borrowing and repayment

capacity,

the European Council tasked the Commission with putting forward proposals for additional own resources. The

digital levy is one of them. The new initiative will help address the issue of fair taxation related to the digitalisation

of the economy and, at the same time, is intended to not interfere with the ongoing work at the G20 and OECD

level on a reform of the international corporate tax framework.

Problem the initiative aims to tackle

Digitalisation of the global economy is progressing fast and brings many benefits. At the same time, an important

characteristic of digital businesses is their ability to operate in certain jurisdictions and earn revenues elsewhere.

Digital businesses rely heavily on intangible assets. They are also able to generate large revenues by making

particular use of and by monetising consumer and user data and user-created content. Much of this value created

by users is not captured by the current tax systems. Furthermore, the place of value creation might not be aligned

with the place of taxation. Taxes are thus often paid, if at all, in locations different from where the value is created.

SAU, Alm.del - 2020-21 - Bilag 118: Kommissionens foranalyse til forslag om indførelse af en skat på digitale tjenester

Digital businesses can indeed benefit from

scale without mass

and do not necessarily pay corporate taxes in all

jurisdictions where they have a significant economic presence. Moreover, digital business models rely heavily on

intangible assets, allowing digital companies to shift profits to certain jurisdictions more easily and thus pay less

tax compared to more traditional businesses. In addition, automated digital services can provide services at close

to zero marginal costs and often exploit powerful user network effects. These factors create a strong tendency

towards market concentration and the accumulation of market power and lead to digital companies exploiting and

possibly worsening market inefficiencies. As such, the ineffective taxation of companies engaging in the digital

economy and the digital

sector’s

speedy growth, impact the level playing field between these companies and

those of other sectors of the economy.

Lower taxes, or even no taxes at all, paid by companies engaged in the digital economy weaken the sustainability

of public finances. This is particularly blatant at a moment when the EU and Member States are facing a greater

fiscal and debt burden as they tackle the COVID-19 crisis and support a recovery. The EU and Member States will

need to avail themselves of all major instruments to ensure a sustainable and fair recovery, and that stable future

revenues are secured in a manner well aligned with the significant economic changes to come.

Basis for EU intervention (legal basis and subsidiarity check)

A fair and competitive digital economy is one of three strategic priority areas in the agenda on

Shaping

Europe’s

Digital Future

. This means ensuring that EU rules, including in the area of taxation, are fit for purpose in the

digital economy, and that companies compete in Europe on fair terms.

The new initiative can mitigate distortions and the risk of fragmentation of the EU single market resulting from the

uneven playing field between operators in the digital sphere as well as the digital sector and other sectors of the

economy. Action at the EU level would help reduce these risks and strengthen the single market for digital

activities, in line with the Digital Services Act package. Furthermore, the problems of the current tax framework to

address the reality of companies operating in the digital sector are not particular to a specific Member State, but

constitute a common challenge for the EU as a whole. Coordinated action at EU level is necessary to address

these challenges in an efficient and comprehensive manner and preserve the functioning of the internal market.

The legal basis will depend on the final design of the initiative. Both Article 113 (harmonisation of indirect tax rules

to ensure the functioning of the internal market) and Article 115 (harmonisation of other tax rules to ensure the

functioning of the internal market) of the Treaty on the Functioning of the European Union (TFEU) are relevant,

either separately or combined.

B. Objectives and Policy options

The main objective of the initiative is to come forward with a measure that allows for a fairer contribution from the

companies that operate in the digital sphere for the purposes of the recovery and to support a more stable

medium-term outlook. Modernising tax rules to better fit current circumstances and the expected increase in

digitalisation should allow that the initiative better fits the reality of the digital economy and addresses future

developments head on, limiting the risk of short-term solutions and distortions across businesses of different types

and origins.

The initiative will be designed in a way that is consistent with the Digital Services Act package and the

Commission’s digital strategy to ensuring a fair and competitive digital economy,

as announced in the

Communication ‘Shaping Europe's digital future’.

The work undertaken in the OECD Inclusive Framework to find a global consensus-based solution that addresses

the tax challenges of the digitalisation of the economy is considered and should be factored into the final design

and scope of the initiative, as it is important not to undermine the ongoing discussions at the OECD nor to fuel

international trade tensions. The initiative should be designed in a way that is compatible with the international

agreement to be reached in the OECD as well as broader international obligations.

The baseline scenario will take account of developments at international level. The Commission will identify

additional policy options, such as:



A corporate income tax top-up to be applied to all companies conducting certain digital activities in the EU

A tax on revenues created by certain digital activities conducted in the EU

A tax on digital transactions conducted business-to-business in the EU

The Commission will have to develop the policy options, and design the central scenario, on the basis of several

building blocks:

https://ec.europa.eu/info/sites/info/files/communication-shaping-europes-digital-future-feb2020_en_4.pdf

SAU, Alm.del - 2020-21 - Bilag 118: Kommissionens foranalyse til forslag om indførelse af en skat på digitale tjenester



Scope and definition of digital activities/transactions or companies subject to the initiative: This is a vital

part of the work to be carried out, considering the different business models of companies present in the

digital economy.

The relationship with the EU’s and Member States’ international obligations, including interaction with

Double Taxation Conventions. Notably, the initiative must also comply with the rules of the World Trade

Organisation.

Fairness considerations: The design of the initiative will have to take into account the possible impact on

small and medium sized enterprises (SMEs), digital companies with a dominant vs. weak market position,

or consumers of digital content or goods.

Potential behavioural reactions: It will be important to design the initiative in such a way as to mitigate

incentives to avoid payment of the new tax/levy that will be established.

Forward-looking design: The design of the measure should take into consideration the future evolvement

of the digital economy with a view to putting into place a sustainable tax framework and providing tax

certainty for businesses.



C. Preliminary Assessment of Expected Impacts

Likely economic impacts

The impact will vary depending on the design of the initiative and, in particular, on the scope and definition of

digital activities to be subject to the initiative and on who will ultimately bear its burden. The initiative is likely to

have an impact on the following dimensions, which will have to be analysed to the extent possible:



Businesses engaging and operating in the digital economy, including the impact on foreign businesses

operating in the EU;

Competitiveness and GDP, as the initiative is likely to affect investment decisions and productivity, but

also is intended to create a more level-playing field among digital companies;

Tax compliance costs, which will depend on the option and design parameters chosen;

Tax revenues, including in view of the interaction with other tax categories;

Consumers.

The potential impact on digitalisation, which remains a policy priority for the European Union, and trade

relations should also be taken into consideration as far as possible.



Likely social impacts

The initiative aims to make digital companies pay their fair contribution, and will therefore support revenue

generation and help the sustainability of Member States’ public finances, as well as affect

positively the

(perceived) social fairness of the tax system.

Likely environmental impacts

No direct environmental impact is expected.

Likely impacts on fundamental rights

There is no impact expected on fundamental rights. The potential implications of the initiative on personal data

and the way they are treated by digital companies are likely to be negligible.

Likely impacts on simplification and/or administrative burden

In principle, all digital businesses could be affected by the additional compliance burden, although special

attention will be paid in the design of the options to prevent that SMEs are disproportionately impacted. National

tax administrations could face additional administrative obligations in relation to implementing the new system, in

particular because of enforcement and collection requirements.

The analysis that will underpin the initiative will seek to identify and mitigate to the maximum extent possible the

expected regulatory, administrative and compliance costs associated with the delivery and implementation of the

initiative.

D. Evidence Base, Data collection and Better Regulation Instruments

Impact assessment

An impact assessment will be carried out to support the preparation of this initiative and to inform the

Commission's decision on establishing the appropriate design parameters. Both economic models and

SAU, Alm.del - 2020-21 - Bilag 118: Kommissionens foranalyse til forslag om indførelse af en skat på digitale tjenester

appropriate quantitative tools will be used in order to assess the potential economic and tax revenue effects of the

initiative as well as the impact of the proposed options on businesses and on households.

These interactions should be considered since the initiative would not apply to a sector isolated from the rest of

the economy nor in a tax-free world. Two features will be worth considering in this respect: i) the possibility for an

economic model to take into account the existing corporate tax system and potential fiscal interactions; and (ii) the

close connection between the digital sector and the rest of the economy.

Evidence base and data collection

Data and information is required for the assessments and analyses underpinning this initiative. Eurostat data on

the digital economy as well as other relevant datasets (e.g., Eurostat, Orbis, CAPITAL IQ, OECD) will be used.

The analysis will also rely on data and analytical work built with expertise and support from the Joint Research

Centre. Moreover, relevant studies from the OECD, IMF, UNCTAD and other similar sources on the digital sector

and taxation of the digital economy will also be a valuable source of information.

Consultation of citizens and stakeholders

The aim of the public consultation will be to allow all stakeholders to give their views on all the aspects of a digital

levy, as well as on the potential impact of the different options under consideration. The consultation will be based

on a questionnaire. It will run for a period of 12 weeks and will be accessible via the Commission's Better

Regulation Portal (https://ec.europa.eu/info/consultations_en ).

The main expected stakeholder groups to be consulted through the public consultation are:



Member States / public authorities

Business associations (digital services, e-commerce, SMEs, others)

Non-governmental / civil society organisations

Citizens (individuals)

Academia

In addition to the general public consultation, a limited number of more targeted consultation actions could take

place (e.g., with the European Parliament, the European Economic and Social Committee, or with relevant

stakeholders).

Will an Implementation plan be established?

An implementation plan will be prepared together with the legislative proposal.