Here’s the deal. The European Commission has put forward proposed new rules surrounding digital taxation for major digital service providers in a bid to move towards a fairer tax system in the EU.

So what’s it all about? Well, essentially this means that because of the way the tax rules currently exist, large digital corporations haven’t been subject to paying tax in the EU Member States that they trade-in. And that’s about to change.

Who are these large corporations, you ask? Well, they are digital-based companies that fill one or more of the following criteria:

  • Make over €7 million in annual revenues in a Member State
  • Have more than 100,000 users in a Member State in a taxable year
  • Have over 3,000 business contracts for digital services created between the company and business users in a taxable year.

The Key Players

So we’re not talking about retailers here. We’re talking about the biggest fish in the digital world – Spotify, Netflix, Facebook, Apple, Google… you get the gist. And while the Commission works on the long-term tax solution of reforming corporate tax rules, they are suggesting an interim tax to cover the main digital activities that currently aren’t being taxed in the EU. This includes revenue created from selling online advertising space, the sale of user data, and digital intermediation, proposed at a levy of 3% of a company’s annual turnover.

But is this a good thing or a bad thing? That’s the million-dollar question (or 5 billion euro question, in this case!) When it comes to other trending topics relating to EU regulations, such as geoblocking and GDPR, digital tax sits on the same wavelength in that yes, in theory, it’s a positive move. There’s no doubt about it. But it’s also anything but straightforward as far as execution is concerned.

The Practicalities

Take another look at the criteria a company needs to fulfil in order to be subject to digital taxation. All fairly straightforward measures. But who is actually going to be doing all of this measuring, we beg the question? Are corporations really going to start handing over their Google Analytics credentials to watchdogs to prove how many users are coming to their website from each member state? In order for these new rules to actually have an effect, we are relying on this kind of information to be shared, and without proper and strict enforcement, is it possible that we’re looking at a tax solution that’s leaning heavily on the honour system?

The Future

Although it’s clear that there is still some work to do in terms of fleshing out the regulations around digital taxation, we can’t help but think that this is a solid start towards putting certain boundaries in place for EU member states. Not only are we seeing the competitive advantage scales start to weigh a little less on EU companies, but it’s also high time that we start to plan for the future impact of digital on society as we know it.

Sure, flying cars aren’t as mainstream as ‘Back to the Future’ once predicted, but we’re not far off it either. AI is dominating digital, and digital is the key driver of society. So what’s going to happen when cars drive themselves, and couriers are replaced by robots, and you can walk in and out of a convenience store with your items without having to interact with a human or deal a checkout for that matter? Wait – all of this is already happening!

So as we prepare for AI to take over the world, are we doing anything to prepare for the consequences of these technological marvels? Like growing unemployment rates as machines replace humans, for example. Of course, the argument can be made that there are some jobs that are always going to need humans at the helm, but there’s no arguing that there are certain jobs that will without question be automated in the next couple of years. In fact, it’s reported that up to 800 million global workers will lose their jobs by 2030. So if AI is going to drive digital, it really only makes sense for it to also play a part in driving taxation too, right?

What are your thoughts on the new Digital Tax proposal? Is it a step in the right direction, or just a pipe dream? Let us know! Follow Kooomo on Twitter and tweet us using the hashtag #EUDigitalTax now!