COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL
A Fair and Efficient Tax System in the European Union for the Digital Single Market (DSM)
Introducton: digital technologies are transforming business models which is putng pressure on Europe's
taxation system The EU DSM needs a modern + stable tax framewor$ for the digital economy to stimulate
innovation tac$le mar$et fragmentation + allow all players to tap into the new mar$et dynamics under fair +
balanced conditions Essental: ensure tax certainty for business investment + preventing new tax loopholes
In the feld of taxatonn, policy makers are struggling to fnd solutons which would ensure fair and efectie
taxaton as the digital transformaton of the economy accelerates
The current tax rules no longer ft the modern context where businesses rely heavily on hard-to-value
intangible assets, data and automation, which facilitate online trading across borders with no physical
presence
Some businesses are ta$ing full advantage of the infrastructure and rule of law institutions available
while they are not considered present for tax purposes
o This free rider position tilts the playing feld in their favour compared to established businesses
As a resultn, the growing challenge of ensuring that the digital economy is fairly taxed has stll not been
adequately addressedn, primarily due to a lack of internatonal consensus and the multdimensional nature of
the challenge
Failure to address will lead to opportunities for tax avoidance, less tax revenues for public budgets,
impact on social fairness and it will destabilise the level playing feld for businesses
Since the start of its mandaten, this Commission has taken acton to ensure the principle that all businesses
operatng in the EU should pay their taxes where profts and ialue are generated.
This principle is essential for a fair and efective taxation in the SM, and it can only be enforced through
common and coordinated measures
Divergent national approaches can fragment the SM, increase tax uncertainty, destabilise the level
playing feld and open new loopholes for tax abuse Therefore, the international tax framewor$ needs to
be reformed
This new agenda will complement the major strides that haie already been made in improiing the corporate
tax framework in recent yearsn, both at EU and internatonal leiel.
MS have agreed to a series of ambitious rules to tac$le aggressive tax planning and increase tax
transparency, and have intensifed their international stance on tax good governance through the
External Strategy on Efective Taxation
o State aid control; the Commission has carried out a general enquiry into the tax ruling practces
of MS;
o VAT; the Commission is addressing the challenges of the digital economy with its proposal on e-
commerce;
o CCCTB; Negotiations are advancing and once agreed, it will provide a competitive, fair and
robust framewor$ for taxing companies in the SM
Businesses are now more digitalised than ever before
We are actng in a borderless and globalised world. Increased consumpton is accompanied by intensifed
trade and increasing trade iolumes, which are not only afecting traditional economic, political, governance,
enforcement and business models but also tax and customs administration
Digitalisaton has acted as a facilitator and accelerator of cross-border trade
The evolution of business models means that no physical presence is required to sell goods and services
into a mar$et, which means that it can be difficult to estailis t e tax b iase in the mar$et jurisdiction or
the origin of goods for customs purposes
It is disrupting existing business models, and online platorms are more efectively reacting to demand
A Fair and Efficient Tax System in the European Union for the Digital Single Market (DSM)
Introducton: digital technologies are transforming business models which is putng pressure on Europe's
taxation system The EU DSM needs a modern + stable tax framewor$ for the digital economy to stimulate
innovation tac$le mar$et fragmentation + allow all players to tap into the new mar$et dynamics under fair +
balanced conditions Essental: ensure tax certainty for business investment + preventing new tax loopholes
In the feld of taxatonn, policy makers are struggling to fnd solutons which would ensure fair and efectie
taxaton as the digital transformaton of the economy accelerates
The current tax rules no longer ft the modern context where businesses rely heavily on hard-to-value
intangible assets, data and automation, which facilitate online trading across borders with no physical
presence
Some businesses are ta$ing full advantage of the infrastructure and rule of law institutions available
while they are not considered present for tax purposes
o This free rider position tilts the playing feld in their favour compared to established businesses
As a resultn, the growing challenge of ensuring that the digital economy is fairly taxed has stll not been
adequately addressedn, primarily due to a lack of internatonal consensus and the multdimensional nature of
the challenge
Failure to address will lead to opportunities for tax avoidance, less tax revenues for public budgets,
impact on social fairness and it will destabilise the level playing feld for businesses
Since the start of its mandaten, this Commission has taken acton to ensure the principle that all businesses
operatng in the EU should pay their taxes where profts and ialue are generated.
This principle is essential for a fair and efective taxation in the SM, and it can only be enforced through
common and coordinated measures
Divergent national approaches can fragment the SM, increase tax uncertainty, destabilise the level
playing feld and open new loopholes for tax abuse Therefore, the international tax framewor$ needs to
be reformed
This new agenda will complement the major strides that haie already been made in improiing the corporate
tax framework in recent yearsn, both at EU and internatonal leiel.
MS have agreed to a series of ambitious rules to tac$le aggressive tax planning and increase tax
transparency, and have intensifed their international stance on tax good governance through the
External Strategy on Efective Taxation
o State aid control; the Commission has carried out a general enquiry into the tax ruling practces
of MS;
o VAT; the Commission is addressing the challenges of the digital economy with its proposal on e-
commerce;
o CCCTB; Negotiations are advancing and once agreed, it will provide a competitive, fair and
robust framewor$ for taxing companies in the SM
Businesses are now more digitalised than ever before
We are actng in a borderless and globalised world. Increased consumpton is accompanied by intensifed
trade and increasing trade iolumes, which are not only afecting traditional economic, political, governance,
enforcement and business models but also tax and customs administration
Digitalisaton has acted as a facilitator and accelerator of cross-border trade
The evolution of business models means that no physical presence is required to sell goods and services
into a mar$et, which means that it can be difficult to estailis t e tax b iase in the mar$et jurisdiction or
the origin of goods for customs purposes
It is disrupting existing business models, and online platorms are more efectively reacting to demand
