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No new tax regime for digital economy

18th June 2014

MGI World No new tax regime for digital economy

The digital economy does not require a separate new tax regime, but current rules will need to be adapted to meet the demands of this growing and complex sector. This was the view of the European Commission’s (EC) expert group on how to respond to the digitisation of the global economy.

In a report that will form the basis of the European Union’s (EU) approach to the increasingly broad sector, the group argued that the need for “neutral, simplified and coordinated tax rules” are more important than ever.

Former Portuguese finance minister Vítor Gaspar, chair of the group, commented: "Digitisation opens exciting opportunities for entrepreneurs and for people in general. It also creates challenges and opportunities for tax systems and for tax administrations, which will have to adapt to the new realities.”

While the group said no separate regime is necessary, it did make a number of recommendations to reflect the way in which the digital economy is fast becoming part of the mainstream.

The destination-based VAT system for digital services could be further expanded to all goods and services in the future, while the group also recommends the removal of the VAT exemption for small consignments from non-EU countries.  

In terms of corporate taxation, the G20/OECD Base Erosion and Profit Shifting (BEPS) project will be “fundamental to tackling tax avoidance and aggressive tax planning globally”, said the report, which argues member states should adopt a common position. The group also suggested that more radical reforms of the tax system could be looked at in the future, including a destination-based corporation tax.

EU digital commissioner Neelie Kroes added: "This is no longer about a digital sector – it's about an entire economy that's going digital.” She added: ”I also welcome that the group is not just seeing digital as a challenge from a tax perspective, but also as a solution for simplification, transparency and innovation in the taxation area.”

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