CFE’s EU Tax Top 5 – Round-up of EU Tax Policy News – 21 December 2020

The EU Commission unveiled two new proposals as part of its plan to create an EU for the Digital Age, the Digital Services Act and the Digital Markets Act, which will introduce rules for digital services provided in the EU, such as through online marketplaces, platforms and social media. The proposals are intended to “better protect consumers and their fundamental rights online, and will lead to fairer and more open digital markets”.

The proposals also aim to support development of smaller and medium-sized enterprises by lowering compliance costs and prohibiting unfair conditions imposed by dominant online platforms. The Commission in its announcement of the package detail that the legislation is intended to operate as follows:

Digital Services Act

The Digital Services Act will introduce a series of new, harmonised EU-wide obligations for digital services, carefully graduated on the basis of those services’ size and impact, such as:

• Rules for the removal of illegal goods, services or content online;
• Safeguards for users whose content has been erroneously deleted by platforms;
• New obligations for very large platforms to take risk-based action to prevent abuse of their systems;
• Wide-ranging transparency measures, including on online advertising and on the algorithms used to recommend content to users;
• New powers to scrutinize how platforms work, including by facilitating access by researchers to key platform data;
• New rules on traceability of business users in online market places, to help track down sellers of illegal goods or services;
• An innovative cooperation process among public authorities to ensure effective enforcement across the single market.

Platforms that reach over 10% of the EU’s population will be subject to a new accountability framework, with an oversight body capable of imposing sanctions.

Digital Markets Act

The Digital Markets Act will:

• Apply only to major providers of the core platform services most prone to unfair practices, such as search engines, social networks or online intermediation services, which meet the objective legislative criteria to be designated as gatekeepers;
• Define quantitative thresholds as a basis to identify presumed gatekeepers. The Commission will also have powers to designate companies as gatekeepers following a market investigation;
• Prohibit a number of practices which are clearly unfair, such as blocking users from un-installing any pre-installed software or apps;
• Require gatekeepers to proactively put in place certain measures, such as targeted measures allowing the software of third parties to properly function and interoperate with their own services;
• Impose sanctions for non-compliance, which could include fines of up to 10% of the gatekeeper’s worldwide turnover, to ensure the effectiveness of the new rules. For recurrent infringers, these sanctions may also involve the obligation to take structural measures, potentially extending to divestiture of certain businesses, where no other equally effective alternative measure is available to ensure compliance;
• Allow the Commission to carry out targeted market investigations to assess whether new gatekeeper practices and services need to be added to these rules, in order to ensure that the new gatekeeper rules keep up with the fast pace of digital markets.

The European Parliament and the Member States will discuss the Commission’s proposals in the ordinary legislative procedure. If adopted, the final text will be directly applicable across the European Union.

EU Commission Publishes Proposal to Confer Implementing Powers on EU VAT Committee

Joint declarations have been signed by the European Parliament, the Council of the European Union and the European Commission identifying the EU legislative priorities for 2021, and the policy objectives for 2020 – 2024.

The legislative priorities are to:

1. Implement the European Green Deal;
2. Shape Europe’s digital decade;
3. Deliver an economy that works for people;
4. Make Europe stronger in the world;
5. Promote a free and safe Europe;
6. Protect and strengthen our democracy and defend our common European values.

The policy priorities are:

1. Ensuring a full recovery from the COVID-19 pandemic;
2. Accelerating the transition to a fairer, healthier, greener and more digital society in the EU and on the global stage;
3. Maintaining the EU’s global leadership in fighting climate change;
4. Shaping our own digital solutions and establishing Europe’s digital sovereignty;
5. Making our economy more resilient and robust;
6. Defending our common values and strengthening our democratic model;
7. Strengthening the EU’s role as a global actor.

On the tax front for 2021 legislative priorities, the declaration notes the EU’s ongoing intention to “pursuing fair digital taxation”, “ensure more transparency on the taxation of multinational businesses; and ensure fair competition within the EU and on the global stage” and also emphasises the EU’s commitment to “tackle money laundering and the financing of terrorism, tax fraud, evasion and avoidance as well as ensuring a sound and fair tax system”.

In the policy objectives concerning making the EU economy more resilient and robust, the declaration states that the EU needs “to strengthen our single currency, ensure greater financial stability and protect ourselves against financial crimes, tax fraud, evasion and avoidance, and money laundering. European businesses and people need to be protected against unfair competition from abroad. To achieve this, we will introduce an appropriate set of actions on taxation and address the distortive effects that certain foreign subsidies have on our single market.”

The OECD has published the public input received to the consultation concerning blueprints for Pillar 1 (review of profit allocation and nexus rules to reflect digital business models) and Pillar 2 (global anti-base erosion rules for a minimum effective taxation rate).