The notion of a ‘taxable establishment’ for the digital industry in Europe is likely to evolve. Indeed, the European Union (EU) wants to change the law in order to stop considering platforms like Google, Facebook and Amazon as present in only one European country, Ireland, because they are providing a service to the whole continent.
In France, the Court of Cassation had estimated in July 2017 that Google did not have a permanent establishment in France with respect to their VAT and corporate tax laws, and as a result had invalidated the tax adjustment imposed by the French State to the American giant.
The current interpretation of ‘taxable establishments’ still allows a simple tax optimisation technique: billing all its services which were delivered across Europe, purely to Ireland. A country which has a generous VAT and corporate tax system compared to the rest of Europe, that allows it to remain competitive against stronger economies such as France or Germany, in attracting talents and businesses.
Today, the European Commission, under the impetus of France, proposes to define a taxable digital presence of a platform in a country if it generates more than €7 million per annum in a Member State, if it has more than 100,000 users in a state, or if more than 3,000 commercial contracts for digital services are created between the enterprise and the active users.
In order to involve the digital giants and make them collaborate quicker, the Commission proposes a tax rate of 3% on these platforms based on the turnover generated in the EU waiting for the implementation of this new measure.
Put Europe back in the center of the digital race
As a reminder, GAFA (Google, Apple, Facebook & Amazon) alone represents nearly $4 trillion of market capitalisation! Almost twice the annual GDP of the UK or France.
The GAFAs (Google, Apple, Facebook & Amazon) alone represent nearly $4 trillion in market capitalisation!
On the other hand, Europe is not capable for the moment to compete with American giants in the main areas of Tech, neither in e-commerce, nor in social networks, nor in mobile phones, nor in software publishing, nor in buyer/seller relationship platforms such as Uber or Airbnb.
If we want to prevent Europe permanently missing the mark where it would become a reservoir of consumers and producers of personal data, at profit from non-European platforms, we need to become a key player in the next stage of technological evolution. A subject on which I will come back on a next article.