Fair taxation of the digital economy

22 December 2017


The objective of the initiative is to define an approach to the taxation of the digital economy. The approach should meet the goals of fairer and more effective taxation, supporting public revenue and a level playing field across businesses. It should also facilitate an efficient taxation, supporting EU growth and competitiveness through the Digital Single Market.

The questionnaire takes about 20 minutes to complete. The questionnaire is accessible in all official EU languages (please note that due to the translation process, with the exception of the English version, all language versions will be available online 2 weeks later, from the moment the consultation is launched). You can submit your reply in any of the official EU languages.

In addition to this introduction, the consultation is structured as follows:

The second part presents some general background information on the digital economy.

The third part of the questionnaire asks for some background information about you, the respondent. This is in order to better understand your perspective.

The fourth part covers the current international taxation framework and its shortcomings. This section has two sub-parts: one that includes general questions suitable for all type of respondents and a second sub-part with more specific questions which require more in-depth knowledge of the current international taxation framework. You can choose to reply to the general questions only or to the whole section.

The fifth part covers possible solutions to address those shortcomings.
This section has two sub-parts: one that includes general questions suitable for all type of respondents and a second sub-part with more specific questions which require more in-depth knowledge of the current international taxation framework. You can choose to reply only to the general questions or reply to the whole section.

The final section allows you to upload a position paper or any kind of document that you think is relevant to better explain your views.


The digitalisation of the global economy is happening fast. Businesses of all kinds now derive much of their value from intangible assets, information and data. Close to a third of the growth of Europe's industrial output is due to the uptake of digital technologies.

There is no well-defined digital sector, notably the Information and Communication Technology (ICT) sector is not synonym for the digital economy. Rather, one might consider the ICT sector as the backbone of the digital economy and the driving force behind the digitalisation of more traditional industries. There are different business models that can be commonly applied in the digital economy:

The digital platform model granting access to a market place: typically it involves 2 services - first the platform offers access to users in exchange for a fee (on transaction or subscription); and then users offer services among themselves.

The digital platform model granting access to content: it offers access to a platform and to content (music or video, for example) for users in exchange for a fee.

The social media and advertising model: typically it involves two services - first the platform offers access (to a service that can be a network, a search engine etc.) to users for free; and then the personal data obtained from such users is sold, either to advertising companies or to others businesses.

The distant sales model: goods sold via a website, and physically transferred afterwards. Revenues are generated from the sales of goods.

Corporate taxation is based on the principle that profits should be taxed where the value is created. In the case of the digitalised economy the link between value creation and taxation is not well captured by today's rules. Tax rules need to determine what triggers a country's right to tax. Today's residence and permanent establishment rules that determine when a business becomes taxable in a country are largely based on legal concepts and physical presence. The challenge is how to establish and protect taxing rights in a country where businesses can provide services digitally with little or no significant physical presence.

Tax rules also need to determine how much profit is taxable and then how much of that profit is allocated to a certain country, which is done mainly via transfer pricing rules. These are rules that are used to determine the price for transactions that take place between companies in the same multinational group based on an analysis of the functions performed, assets used and risks assumed. However, profits derived from digitalised business models are heavily driven by intangible assets , data and knowledge, which are difficult to identify and value. Moreover, intangible assets can be easily shifted around, which opens significant tax planning opportunities to some multinational businesses, especially those with more digitalised business models.

Together, the current rules and the high mobility of intangible assets push down the tax contribution of more digitalised businesses, creating competitive distortions. In its Communication of 21 September 2017, the Commission sets out an ambitious and common EU agenda to ensure that the digital economy is taxed in a fair and efficient way. The international tax framework needs reform, but agreeing on solutions at global level has proved to be difficult, as is evident from the OECD report in October 2015.

Without EU action there is a risk of unilateral measures fragmenting the single market and hampering the EU's competitiveness. There is a risk that Member States' tax bases will gradually erode if there is no EU action to address this. This and the unfairness of the situation increase pressure on policy makers to act.

See the full questionnaire