Austria Lays Out Problem Areas In EU Quest for Digital Tax Deal

Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.

By Joe Kirwin

European Union member nations will try July 18 to narrow differences over a controversial temporary digital tax targeting large internet companies like Alphabet Inc.'s Google and Facebook Inc.

In a confidential document obtained by Bloomberg Tax, EU presidency holder Austria said it wants to “kick off the discussion” with a focus on the scope of the tax, the tax threshold, the tax rate, and a sunset clause. Discussion should also cover the “place of taxation and apportionment of revenues” and the creation of a single online portal for the companies liable for the tax, the document said.

The document is dated July 10 and was intended as a starting point for debate. Austria is aiming for agreement by the end of the year.

Set at 3 percent, the tax is meant to be a temporary measure until the bloc can reach permanent agreement. The levy applies to businesses with global annual revenue of at least 750 million euros ($876 million), and annual EU revenue of more than 50 million euros.

“The proposals for the digital economy are of the highest priority in the field of taxation for the Austrian presidency and we will strive for political progress on the DST during our presidency,” Austrian presidency spokesman Alexander Paier told Bloomberg Tax in a July 17 email.

Struggling Over Scope

The European Union proposal defines taxable revenue as revenue stemming from “the placing on a digital interface of advertising targeted at users of that interface.”

The concept of targeted advertising has proven one of the thorniest issues during initial negotiations, and is one that several member nations “stressed the need to clarify,” according to a separate document from the Austrian presidency that was obtained by Bloomberg Tax. The document is dated July 9 and was prepared in advance of the meeting.

The document lists two possible definitions for the phrase. One, a more narrow definition, could mean “advertising targeted at individual users of a digital interface based on the data collected on them,” according to the Austrian document.

The other broader definition could mean that “all online advertising is deemed to be ‘targeted advertising,’” the Austrian document said.

However the Austrian document notes that both approaches have their advantages and disadvantages. For example, the broader definition is more simple, but it is inaccurate, the document said.

“The Austrian paper does help to clarify issues on the scope but whether it is acceptable to other member states it is not clear,” an EU diplomat, speaking on the condition of anonymity, told Bloomberg Tax.

Scope Limitations?

Bulgaria, which previously held the rotating six-month EU presidency, and submitted in June the first “compromise text” on the tax, suggested shrinking the DST scope for both online advertising and services exchanged on digital platforms. The suggested change to online advertising was in response to “cascading effect” concerns raised by some member states that user data would be repeatedly taxed.

“The narrowing of the scope is completely opposite to our views,” a separate EU diplomat, who spoke on the condition of anonymity, told Bloomberg Tax on July 16. “We would on the contrary like to see more areas covered. Services can in general be re-categorized or renamed and the tax base can therefore be reduced—this would be unacceptable.”

In a document prepared in advance of a June 13 meeting, Bulgaria proposed scrapping the 750-million euro threshold.

Some members of the bloc fear the threshold may target specific companies, making it incompatible with World Trade Organization rules, while others say startups would be hurt without the parameter, according to the Austria document.

According to the Austria document, some EU member states “have proposed to consider specific thresholds for each member state in order to grant flexibility.” But Austria warned this would “lead to fragmentation of the single market and could harm the competitiveness of the EU as a whole.”

“Member states are invited to express their views on the threshold requirements,” the Austria document said.

Sunset Option

The temporary tax is part of a two-pronged approach. The long-term proposal would amend pending EU common consolidated corporate tax base legislation to establish a “virtual” taxable presence, or permanent establishment. Negotiations haven’t started on the permanent establishment component.

Some member countries, including Sweden, Finland, Denmark, Ireland, Luxembourg, Cyprus, and Malta, insist they will only agree to the longer-term approach. They also say it must be in line with whatever conclusions are agreed on digital taxation in the Organization for Economic Cooperation and Development.

To ease some concerns, the Austria presidency document includes two options for a sunset clause. The first option would end the digital tax as soon as there is consensus on the long-term plan. The other option would set a specific date to end the tax, which could be extended if there is no agreement on a long-term plan.

To contact the reporter on this story: Joe Kirwin in Brussels at

To contact the editor on this story: Penny Sukhraj at

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Tax