European Commission proposes new rules on the taxation of the digital economy

On 21 March 2018, the European Commission proposed new rules to ensure that digital business activities are taxed in a fair and growth-friendly way in the EU.


While digital businesses have evolved rapidly in the recent past, the current tax rules do not fully fit the modern, increasingly digital economy, resulting often in a misalignment between the place where the profits are taxed and the place where value is created. In order to address the tax challenges from the digital economy the EU Commission presented its so-called “Digital Tax Package”, which mainly consists of two draft Directives and one Recommendation to the EU Member States. This package supports the Commission’s key priority of completing the Digital Single Market, which also takes into account the global dimension: the OECD has committed to bring forward a report on the next steps internationally by 2020.

Legislative proposals in a nutshell

Draft Directive on the corporate taxation of a significant digital presence:

  • To reform corporate tax rules so that profits are allocated and taxed where businesses have significant interaction with users through digital channels (assumption of a taxable digital presence or a virtual permanent establishment);
  • This is the EU Commission’s preferred long-term solution.

With respect to non-EU countries, not captured by this Directive, the EU Commission issued a Recommendation to the Member States for adaption of such rule via the double tax treaty (see also below).

Draft Directive on Digital Services Tax (DST):

  • To introduce a DST of 3% on certain revenues from digital activities;
  • The introduction of a DST is considered as an interim solution until the above long term solution is in place.

As a next step, both legislative proposals will be submitted to the European Council for adoption and to the European Parliament for consultation. If adopted by unanimous vote, the expected effective date would be 1 January 2020.

Legislative proposals in detail

Draft Directive on the corporate taxation of a significant digital presence (long-term, comprehensive solution)

A digital platform shall constitute a significant taxable digital presence in an EU Member State if it fulfils one or more of the following criteria:

  • Total annual revenues from digital services to users in that Member State in a taxable year exceed a threshold of EUR 7 million, and/or
  • Users of digital services in that Member State in a taxable year exceed 100’000, and/or
  • Business contracts for digital services in that Member State in a taxable year exceed 3’000.

The new rules would also change how profits are allocated to Member States in a way which better reflects how companies can create value online: for example, depending on where the user is based at the time of consumption or where the value is generated through user participation.

Such directive would apply to all companies that are resident in an EU member state. It would also apply to companies in non-EU member states rendering digital business to EU based users and customers unless there is a double tax treaty in place which does not provide for similar rules on significant digital presence and profits attribution (this is for the time being the case, since currently existing double tax treaties do typically not allow for such digital taxation). Hence the below recommendation to the EU member states to re-negotiate double tax treaties to include such digital business taxation rules.

Draft Directive on Digital Services Tax (short term, interim solution)

Unlike the common EU reform of the underlying tax rules, the interim DST would apply to revenues created from certain digital activities which under the current tax rules would not be taxed in the countries where the value is generated. This DST would only remain in force as an interim measure, until the comprehensive solution is in place. However, it would apply to any company rendering digital services in the EU irrespective whether an EU member state based company or not and irrespective of existing double tax treaties.

The tax would apply to revenues created from activities where users play a major role in value creation and which are the hardest to capture with current tax rules, such as those revenues:

  • created from selling online advertising space;
  • created from digital intermediary activities which allow users to interact with other users and which can facilitate the sale of goods and services between them;
  • created from the sale of data generated from user-provided information.

The DST would only apply to companies with total annual worldwide revenues of EUR 750 million and taxable revenues of EUR 50 million in the EU. This would help to ensure that smaller start-ups and scale-up businesses remain unburdened.

Recommendation relating to the corporate taxation of a significant digital presence

In connection with the long term Draft Directive on the corporate taxation of a significant digital presence, the EU Commission also issued an accompanying Recommendation to the EU Member States for cases where the proposed Directive would not apply, i.e. when Member States have tax treaties in place with non-EU countries (which would also be the case for Switzerland).

In particular the EU Commission recommends to Member States to amend their tax treaties with non-EU countries by a) changing the definition of permanent establishment to take into account significant digital presence and b) including rules for respective profit attribution.

For further details regarding the EU Digital Tax Package please refer to the detailed newsletter of the PwC Network EUDTG.

Implications of proposed rules for Switzerland

Although the above legislative proposals are EU Directives, the directives still impact companies operating out of Switzerland or other non-EU states, if finally adopted.

Draft directive on Digital Services Tax:
The DST would affect Swiss groups performing digital services in the EU as the tax becomes due if the user / customer is in the EU, provided they meet the thresholds mentioned above.

Draft directive on the corporate taxation of a significant digital presence:
These rules shall not apply if an entity is resident for tax purposes in a non-EU jurisdiction (e.g. Switzerland) that has a double tax convention (DTC) in force with the relevant Member State, and if the DTC does not provide for a taxable digital presence (which is currently the case for all Swiss DTCs). Hence, groups operating out of Switzerland are expected to be affected by this potential measure only in the longer term, i.e. when DTCs are renegotiated (as proposed in the EU Commission’s Recommendation) to include the taxable digital presence, subject also to any further OECD developments.

For further details on the progress of the OECD work in this respect as well as for a summarised overview of the different approaches between the OECD and the EU, please find here OECD’s Interim Report 2018 respectively our PwC Tax Policy Bulletin.

Overall, the attractiveness of Switzerland as a location for digital businesses is not negatively impacted compared to the EU as a result of these directive proposals.

Related VAT Aspects

Even if the digital taxation proposals implicate significant changes in the corporate tax landscape, from an indirect tax (VAT) point of view the taxation of turnovers for digitally provided services at the place of the consumer (B2C) is already in force in the EU since 2015. However, the question remains whether the digital presence will also affect the definition of fixed establishments for VAT purposes and such change would have a major impact on how digitally provided services would be taxed in a B2B context.

Current position of Switzerland regarding taxation of digital economy

The State Secretariat for International Finance (SIF) recently has performed an analysis regarding the taxation of the digitalised economy and is generally committed to tax rules that allow for and promote fair competition. However, there have not been any concrete measures yet. In any case Switzerland holds the opinion that measures outside the scope of DTCs are to be avoided and interim measures (e.g. DST) should be limited in scope and time. Read SIF’s position on taxing the digitalised economy here.

Call for action

At this stage it is not clear yet whether respectively how the proposed directives will be adopted by the EU (formal adoption still pending and subject to unanimity among the EU Member States). Further, also the developments on the OECD BEPS project should be taken into consideration and monitored.

Nevertheless, it is recommendable for groups operating out of Switzerland to:

  • identify the digital services rendered in each of the EU Member States;
  • start performing impact assessments of (i) the DST and (ii) a taxable digital presence in the EU Member States, and
  • continue monitoring the EU legislative process and potential unilateral country measures (such as the unilateral measures in Italy, introducing a new tax on digital transactions effective January 1, 2019).

Your contacts

Stefan Schmid
Tel. +41 58 792 44 82

Anna-Maria Widrig Giallouraki
Tel. +41 58 792 42 87

Christa Elsässer
Tel. +41 58 792 42 66

Jeannine Haiböck
Tel. +41 58 792 43 19

Mandatory disclosure rules for intermediaries proposed by the European Commission

On 21 June 2017, the European Commission (EC) adopted a proposal for a Council Directive on the mandatory automatic exchange of information in the field of taxation in relation to so called “reportable cross-border arrangements”. The proposal accordingly provides for mandatory disclosure of cross-border arrangements by intermediaries or taxpayers to the tax authorities and mandating automatic exchange of this information among Member States. Its stated objective is to enhance transparency, reduce uncertainty over beneficial ownership and dissuade intermediaries from designing, marketing and implementing harmful tax structures.

Mandatory disclosure for cross-border arrangements

The proposal applies to cross-border arrangements, i.e. an arrangement or series of arrangements in either more than one Member State or a Member State and a third country.

Such arrangements become reportable by intermediaries (or in certain cases by the taxpayers themselves), if they bear at least one of certain generic or specific features (called “hallmarks” and including but not limited to the conversion of income into lower-taxed revenue streams, deductible cross-border payments between related parties where the recipient is resident in a zero or low tax jurisdiction, situations where the intermediary is entitled to receive a fee fixed by reference to e.g. the amount of tax advantage derived, the use of jurisdictions with weak regimes of enforcement of anti-money laundering legislation for identifying the beneficial ownership of legal entities et al).

An intermediary is any person being responsible vis-à-vis the taxpayer for designing, marketing, organising or managing the implementation of the tax aspects of a cross-border arrangement. An intermediary may also be a person who directly or indirectly provides material aid or advice with respect to any of the above activities. Intermediaries are covered by this proposal if incorporated/governed by the laws/resident/registered in an EU Member State.

Next steps

Timing-wise, Member States will need to take the necessary measures to require intermediaries and taxpayers to file information on reportable cross-border transactions that were implemented between the date of the formal adoption of the proposal by the Council and 31 December 2018. The provisions of the proposed measure are set to apply as per 1 January 2019 with the first information being disclosed by the end of the first quarter of 2019 (being 31 March 2019).

The Commission’s proposal will now be sent to the Council and the European Parliament. The Directive needs to be formally adopted by the Council by unanimous vote, after consultation of the European Parliament.

For more detailed information, please refer to the PwC Newsalert from our EUDTG network.

EU: Anti-Tax Avoidance Directive II (“ATAD II”)

On February 21, 2017, the 28 European Union (EU) Finance Ministers in the ECOFIN Council meeting reached political agreement on the Council Directive amending Directive (EU) 2016/1164 regarding hybrid mismatches with third countries with a view to adopting it (subject to receiving European Parliament’s opinion and legal-linguistic revision).

ATAD II basically adds to the existing ATAD I (adopted in 2016 and effective as of 2019) rules on mismatches with third countries and basically extends the hybrid mismatch definition to also include mismatches resulting from arrangements involving PEs, hybrid transfers, imported mismatches, and reverse hybrid entities. In addition, ATAD II includes rules on tax residency mismatches.

ATAD II still needs to be submitted for formal adoption at a next ECOFIN Council meeting after the European Parliament has formally issued its opinion on the EC proposal, which is currently scheduled for 26 April 2017.

Once formally adopted, EU Member States will need to transpose the provisions by 31 December 2019 and apply them per 1 January 2020. By way of derogation, the specific reverse hybrid entity rule would need to be transposed by 31 December 2021 and applied per 1 January 2022, however payments to reverse hybrids would not be deductible anymore from 1 January 2020.

The further developments in the EU in this regard should be closely monitored as they may potentially have implications for Swiss Finance Branches and Principal Companies.

For more information please find below the newsletter from our EUDTG network.

Download EUDTG newsletter


Greece introduces Voluntary Disclosure Programme

On 21 December 2016 a Voluntary Disclosure Programme (VDP) for undeclared income of previous years has been introduced in Greece through Law 4446/2016 (for prior coverage please refer to our blog). The VDP applies to both individuals and legal entities and requires the filing of standard tax returns for all non-declared tax objects. The application of the VDP ensures in principle that no other administrative and/or criminal penalties would be imposed to the taxpayer regarding the tax infringements restored by the VDP.

A decision of the General Secretary of State is still required to be issued for clarifying procedural and practical matters. Please read the analytical Newsalert from PwC Athens.

PwC has a specially dedicated team of experts dealing with the above voluntary disclosure allowing for a swift and cost efficient processing.

For more details, please contact:

Dr.Marcel Widrig
PwC, Partner
Anna-Maria Widrig Giallouraki
PwC, Senior Manager
Thomas Grossen
PwC, Assistant

Greece: Voluntary Disclosure Program: Bill approved by Parliament

On 21 December 2016 the bill with title “Ptoxeftikos Kodikas, Dioikitiki Dikaiosyni, Teli-Paravola, Oikiothelis apokalypsi forologiteas ylis parelthondon eton, ilektronikes synallages, tropopoiisseis tou N. 4270/2014 kai loipes diataxeis” was voted by the Greek Parliament.

The final text is, apart from some small changes predominantly referring to the timing of payment of the tax, basically unchanged compared to the draft bill. Please refer to our blog dated 14 December 2016.

The bill still needs to be published in the Government Gazette.

A more analytical Newsalert will follow shortly.

PwC has a specially dedicated team of experts dealing with the above voluntary disclosure allowing for a swift and cost efficient processing.

For more details, please contact:

Dr.Marcel Widrig
PwC, Partner
Anna-Maria Widrig Giallouraki
PwC, Senior Manager
Thomas Grossen
PwC, Assistant

EU – State Aid: EU Commission’s Final Decision on Apple and Irish Government’s Lines of Argumentation published

On 19 December the EU Commission published the non-confidential version of of its final decision of 30 August 2016 on the formal State aid investigation on Apple in Ireland. In its final decision the EC concluded that the two rulings granted on the attribution of profits to the Irish branches of two Irish incorporated, non-resident companies constitute unlawful State aid. The EC then ordered immediate recovery of the aid (estimated amount based on the EC of up to EUR 13bn). Both Ireland and Apple have appealed this EC final decision before the General Court of the European Union on 9 November 2016 and 19 December 2016, respectively.

Please find below the text of the decision and the summary provided in the newsletter from our EUDTG network. Please also see a summary of the line of argumentation before the General Court of the European Union as published by the Irish Government on 19 December 2016.

PwC European Direct Tax Group Newsletter dated 20 December 2016

Commission decision dated 30 August 2016

Summary of the line of argumentation of the Irish Government

For prior coverage on this topic please refer also to our Blog dated 31 August 2016.

Greece: Voluntary Disclosure Programm: Draft Bill submitted to the Parliament

On 12 December 2016 the draft bill with title “Ptoxeftikos Kodikas, Dioikitiki Dikaiosyni, Teli-Paravola, Oikiothelis apokalypsi adiloton eisodimaton, ilektronikes synallages, tropopoiisseis tou N. 4270/2014 kai loipes diataxeis” was submitted to the Greek Parliament.

This draft bill also includes provisions on the voluntary disclosure of undeclared taxable income. As preliminary remarks (subject to the finalisation of the bill and/or further clarifications from the Ministry of Finance), the key points for Greek tax residents with undeclared income in Greece and/or abroad can be summarised as follows:

  • Greek taxpayers will have the possibility to legalise income which has been so far undeclared or not duly/accurately declared (legalisation process called for simplification purposes “Voluntary Disclosure Program” VDP)
  • This VDP can cover income for which the obligation to file the initial tax return had elapsed up to 30 September 2016
  • The legalisation will be done by way of submission of tax returns (by hand or electronically) by 31 May 2017. The tax due is in principle payable within 30 days from the submission of the tax return.
  • The amount of main tax due by the taxpayer within the VDP will depend on the year when the income needed to be declared, and the tax due will be calculated based on the applicable tax scale.
  • In addition to the main tax based on scale, an additional tax of 10% (of the main tax due) is levied. This additional tax can be reduced to 8% in case the tax return is submitted earlier, up to 31 March 2017.
  • The additional tax of 8% or 10% is then re-adjusted based on a specific table, depending of the calendar year in which the deadline for submission of the initial tax return had elapsed. The older the year, the higher the readjustment rate (e.g. for years prior to 2002 the readjustment rate of the additional tax is 25% while for years after 2010 the readjustment rate of the additional tax is 0%).
  • The additional tax can then be further increased depending on whether the taxpayer has an open tax assessment and its stage in the process.
  • For amounts declared under the above VDP no further penalties or criminal prosecution for tax evasion will be imposed.

PwC has a specially dedicated team of experts dealing with the above voluntary disclosure allowing for a swift and cost efficient processing.

For more details, please contact:

Dr.Marcel Widrig
PwC, Partner
Anna-Maria Widrig Giallouraki
PwC, Senior Manager
Thomas Grossen
PwC, Assistant

New Corporate Tax Package Released by the European Commission

On 25 October 2016 the European Commission (EC) presented its new package of corporate tax reforms. The package consists of the following four proposed draft tax directives, which are expected to have a significant impact on the European operations of MNCs, if finally adopted:

  • Common Corporate Tax Base (CCTB)
  • Common Consolidated Corporate Tax Base (CCCTB)
  • amendment of the Anti-Tax Avoidance Directive (ATAD) so that it also regulates mismatches with third countries
  • dispute resolutions mechanisms in the EU (Dispute Resolution Directive)

Proposed CCTB/CCCTB Directives 

With the adoption of the two proposals on CCTB and CCCTB the original 2011 CCCTB EC proposal is withdrawn. In the re-launched CCTB, Member States shall agree on and implement a common taxable base in a first step with consolidation coming later as a second step. The Member States continue to apply their own national corporate tax rates.

These rules are planned to be mandatory for EU tax-resident companies (including PEs of non-EU companies) belonging to a consolidated group for financial accounting purposes whose total consolidated group revenue exceeds EUR 750m. SMEs and start-ups with turnovers below this threshold will get the possibility to opt-in. If adopted, these CCTB rules should become effective as of 1 January 2019.

Once the Member States have agreed on the proposed common base (CCTB), they can proceed with the consolidation part of the proposals (CCCTB). If adopted, these CCCTB rules should apply as of 1 January 2021.

Proposed Dispute Resolution Directive

The Commission has further proposed that current dispute resolution mechanisms should be adjusted to better meet the needs of businesses. In particular, a wider range of cases will be covered and Member States will have clear deadlines to agree on a binding solution to double taxation. If adopted, these rules would apply as of 1 January 2018.

Proposed Directive on hybrid mismatches with third countries

The third proposal in the EC’s new package amends the Anti-Tax Avoidance Directive (ATAD) and incorporates minimum standards provisions relating to hybrid mismatches with third countries. If adopted, these rules would apply as of 1 January 2019.

Next steps

All four Directives in principle require the unanimous consent from all EU Member States in the ECOFIN. It remains to be seen whether this can be achieved and whether amendments to the proposed measures need to be done and/or whether some of the measures may need to be dropped. It further remains to be seen whether a group of Member States which are in favour of the proposals, may seek to take the initiative forward under the so-called “enhanced co-operation mechanism”.

Multinationals with operations in the EU should carefully monitor these developments.

For more details please refer to the PwC Newsalert from our EU network as well as the EC’s press release.

For further advice please contact:

Armin Marti
Partner, Corporate Tax / International Tax and Transfer Pricing
+41 58 792 43 43

Anna-Maria Widrig Giallouraki
Senior Manager, Tax & Legal Services
+41 58 792 42 87



Refund of Withholding Taxes to Life Insurance Companies: Finnish Supreme Court Decision in favour of Luxembourg Life Insurance Company

A recent decision of the Finnish Supreme Administrative Court (SAC) signifies a further positive development for the refund of withholding taxes to life insurance companies (unit-linked).

In particular, the SAC decided earlier this year (SAC: 2016:77) on the taxation of Finnish source dividends received by a Luxembourg life insurance company (LuxCo) on its unit-linked products. The SAC concluded that based on the fundamental freedom of movement of capital (Article 63 of the Treaty on the Functioning of the European Union “TFEU”) the LuxCo should be entitled to tax deductions with respect to its Finnish source dividend income.

The case can be summarised as follows:

  • According to Finnish tax law and the applicable Finland/Luxembourg double tax treaty, dividends payable to LuxCo relating to its unit-linked life insurance products are taxable at a rate of 15% on their gross amount. If the same dividend income would have been received by a comparable Finnish life insurance company, this would have in principle also resulted in an effective taxation of 15%. However, the Finnish life insurance company is entitled to a tax deduction on the basis of its technical reserve. For unit-linked products there is in principle a significant correlation between the (dividend) income received by the life insurance company in relation to the unit-linked product (taxable income) and the future liability for payments to the policyholder of the unit-linked product (creating a tax deduction in a form of technical reserve). Therefore, if these two items are considered together, the dividend income received by the Finnish life insurance company is generally almost tax exempt and the comparable Luxembourg company is discriminated against (see also next point). The SAC considered the Finnish source dividends received by the LuxCo on its unit-linked products comparable to dividends received by a Finnish life insurance company in relation to its unit-linked products.
  • The SAC also considered that the link between the technical reserve and the dividend income was at least as direct as the link between the deduction of pension funds on their future pension liabilities and received dividend income in the CJEU Judgment C-342/10, Commission vs Finland.
  • After these conclusions the SAC elaborated how the different treatment should be eliminated. Due to differences in Finnish tax law in 2014 and before compared to the subsequent years, the SAC proposed different methods of how and to what extent the discriminatory treatment should be eliminated. For instance, for dividends distributed in 2015 and onwards, the amount of tax deduction for LuxCo was calculated by a) determining the overall amount of technical reserve deduction to which a Finnish comparable company would be entitled and b) calculating a pro rata deduction thereof, corresponding to the ratio of the Finnish source dividends to the total turnover.

The above decision can be considered as a further enhancement of the success chances for recovery or reduction of withholding taxes suffered in the EU by life insurance companies (established within or outside the EU, as e.g. in Switzerland) and their unit-linked products. As far as non-life and non-linked insurance companies are concerned, the situation based on the existing case law appears currently less positive.

As a final concluding remark we note that similar opportunities exist also for other types of taxpayers (e.g. financial institutions) who are generally subject to withholding taxes on their gross dividend/interest income within the EU. Especially in light of positive case law of the Court of Justice of the European Union (“CJEU”), such as e.g. the most recent “Brisal” judgment, we consider that taxpayers have now more possibilities to argue in favour of withholding tax on the net amounts received, after the deduction of business expenses directly related to the activity carried out. In addition, it could be possible to recover withholding taxes incurred in the past years.

For a further discussion and support on the recovery of withholding taxes in the EU for insurance companies, investment funds, pension funds, financial institutions etc. please contact:

Dieter Wirth
Partner, Tax & Legal Services
+41 58 792 4488

Anna-Maria Widrig Giallouraki
Senior Manager, Tax & Legal Services
+41 58 792 4287

European Commission opens formal State aid investigation into Luxembourg’s tax treatment of GDF Suez (now Engie)

On September 19, 2016 the European Commission (EC) announced that it has opened a formal State aid investigation into tax rulings granted by the Luxembourg tax authorities to GDF Suez group (now Engie).

The EC will investigate the treatment of certain financing transactions between four Luxembourg group subsidiaries. These financial transactions are loans that can be converted into equity and bear zero interest for the lender.

According to the EC’s press release the EC considers that the tax treatment applied to those transactions could represent State Aid, primarily because it qualifies the same financial transaction both as equity and as debt, giving rise to double non-taxation.

The entire opening decision, which is not yet published, represents only the EC’s preliminary assessment in this matter. Based on other investigations, it can be expected that the final decision will take several months.

The press release also includes a summary of the key three categories into which the EC’s recent investigations can be generally classified.

Read more in the newsletter from our EUDTG network and the press release:

PwC EUDTG Newsalert 

EU Commission press release