Wake-up call: European Parliament demands EU to take appropriate action in taxing the digital economy

On April 29th the European Parliament (“EP”) adopted its resolution “on digital taxation: OECD negotiations, tax residency of digital companies and a possible European Digital Tax”. The EP again reiterates that an international tax reformation for the digital economy is needed. Current taxing rights, primarily focusing/relying on physical presence are outdated and tax authorities are failing to keep up with the digital trends, creating – still according to the EP – new untaxed businesses.

The EP is a strong supporter of the international debate that is taking place in this respect at an OECD level but “regardless of the progress of the negotiations in the G20/OECD IF, the EU should have a fall-back position and stand ready to roll out its own proposal for taxing the digital economy by the end of 2021”. Hence, regardless of an international consensus, the EP demands an international tax revolution and asks the EU to pick up the glove(s) here.

Earlier this year the US changed its position on the OECD’s Pillar 1 and Pillar 2 proposals. OECD members are silently working on a consensus proposal that should tackle the tax challenges arising from the digital economy. Further to these discussions, the EU seems to have temporarily suspended its endeavors on drafting an EU digitax proposal as it prefers leaving the initiative with the OECD and – eventually – only taking over the works if no progress is made/result is achieved by mid-2021, said the Belgian Minister of Finance in the working group Finance and Budget of the Belgian Parliament on May 5th.

The question remains whether the EP’s resolution on digital taxation may have any effect on the short term and whether this initiative was necessary. The debates are taking place at an international level where extreme cautiousness is indeed required to get to a breakthrough by summer.

You can find the original article written by Gert Vranckx on Tiberghien’s website.