European web tax, a model that points to revenue withholding

Finding the structure of efficient web tax is one of the most important challenges that European economic ministers will face at the upcoming Ekofin meeting in Tallinn.

Moreover, the Ocse itself has hitherto limited to elaborating (some action plans 1 of the Beps project) some possible web giant taxing models, leaving each country alone to implement specific rules of contrast to non-taxation of profits of the web, choosing them in the framework of the guidelines identified or otherwise elaborated whenever not in conflict with international treaties and Euro-unit law.

Among the various proposals advanced at OECD – in which we find the taxation of foreign companies on the basis of their “significant economic presence”, the application of retention on “digital transactions” (whether abandoned by the last report) or the introduction of a “equalizer” tribute – the latter would seem to be what the economic ministers of Italy, France, Germany and Spain will propose to other European colleagues and the European Commission will have to assess compatibility with European and international legislation.

If the reference model was that of the equalization levy, the tax should be a tax applicable to providers of non-resident digital services without a permanent establishment in the State in which they sell such services differing from the current web tax transient which consists of a simple agreement with the Italian tax authority regarding the presence or not of a stable organization of multinational groups with a turnover of over 50 million. The instrument is a retention on payments to non-resident individuals without a permanent establishment.

The aim is to eliminate all forms of discrimination in the treatment of resident and non-resident companies, irrespective of the type of business they are doing, and at the same time to ensure certainty in tax relations. Is it, however, considered to be complex in isolating the scope of this tax (excise duty, income tax, VAT duplication or other), which would appear to raise problems with compatibility with Union law and the World Trade Organization ( WTO).

In the Indian model, for simplification requirements linked to the taxation mechanism and to avoid excessive penalties against private consumers, the solution was chosen to tax only B2B operations in the event that the overall turnover exceeds a certain threshold; leaving out of the scope of the tax the benefits to private final consumers, which, if borrowed in the European taxation equation, should, however, have to deal with euro-unit law (VAT Directive 112/2006).

As to the amount of the proposed levy, the rate should be fixed to such an extent that account should be taken of the fact that the withholding tax applies to the charges and therefore gross of the production costs thus equaling the “effective” effect of income tax the same activities were carried out where they were carried out through a stable organization.

The problem of double taxation in Italy, with a view to a tax on income tax, could be exceeded by providing for total exemption for the revenues in question; double taxation, however, would fall within the country of residence of the supplier if the credit for the taxes paid abroad was not recognized. However, the problem of double international taxation and the means to avoid or abolish it remain on the carpet, without neglecting the fact that bilateral treaties against double taxation presuppose the income nature of the taxes to which they apply.

It is evident that identifying the equalization tax as a tool to strike digital profits is not without critical profiles. But the effort that emerges from the proposal in question is to wait no longer to tackle the issue of taxing digital profits, not even the latest solution that appears to be in the light of the draft report of 13 July on the proposal for a European Council Directive theme of Ccctb (the Common Consolidated Tax Base for Corporate Tax), which is based on ‘formulation apportionment’ also applied to digital activities and consists of an income allocation formula based on some benchmarks such as the workforce, assets held and sales made.