Following the informal council of finance ministers of the euro zone which was held on 16 September in Estonia, Paris, Berlin, Madrid and Rome are preparing a reform proposal aimed at fighting against the tax optimisation practices of GAFA and some actors of the digital economy in order to reduce or even circumvent their tax burden in Europe, even though they carry out a significant part of their activities and thus, potentially, their profits on this continent.

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The idea would be to create a tax on the "digital presence" of the actors of the new economy (users' number or turnover in each country and no longer a locally reported profit). A proposal is likely to be made at the next ECOFIN committee, next December. This is a critical issue that could lead to a new tug-of-war between Brussels and the GAFAs and which, in France, is set in the specific context of the ongoing litigation between the French State and Google, the former attempting to characterise a permanent establishment of the Irish entity of the latter, in order to increase the French corporate income tax of the latter. At first instance level, the French Tax Authorities failed to demonstrate such establishment.

This is not the first recent initiative to provide solutions to the thorny issue of the taxable base's fair distribution of the actors in the digital economy. At the OECD level, actions have already been taken or are ongoing in the context of the "BEPS" project, which will in particular lead to amendments to the concept of a "permanent establishment", on the basis of which a State may technically tax a company resident in another state that could help avoid the non-taxation situation that Google's Irish entity, among others, takes advantage of. More generally, international rules have entered into an era of harmonisation in recent years, under pressure from Western governments and their weakened finances:  with the adoption of the multilateral tax treaty signed in Paris on 7 June allowing, in particular, the notion of permanent establishments will be standardised without having to renegotiate bilaterally every convention in force, or with the multiplication of documentation and disclosure obligations with regard to transfer pricing, the governments have numerous new means of action and can communicate the gathered information with each other.

In this context, the initiative of the European Union could lead to some discrepancies or disagreements between its members and the other countries. Actually, unlike the actions listed above, this new approach is for now purely EU-centric. Thereby, it could prove to be in contradiction with tax treaties signed with third countries to the EU (bilateral conventions or new multilateral convention), on the ground that it would change the notion of tax base and therefore the distribution of the right to tax between two or more States as provided for by those conventions. Such a change must, in principle, be accepted by all the concerned States, including outside the EU, and / or may result in situations of double taxation which those conventions are intended to avoid, if the third State does not agree with the position of the EU and taxes a profit which is also taxed in Europe on the basis of the new rules.

More surprisingly, this project could prove to be in contradiction with the CCCTB's even more ambitious goal of establishing common principles within the EU to secure uniformity as regards the taxable base in each member country.  For example, choosing to tax a sector of the economy in particular and overriding the principles applicable to all economic sectors is, indirectly, making a complete exception to the goal of a general harmonisation of the taxable basis, irrespective of any sectors. At the EU level, it could even be added that taxing more heavily the digital sector may generate an economic advantage for its "physical" competitors (we think about "uberisation"), thereby creating a real risk of incompatibility of such a tax with the limitations of State aids and more generally the principle of free competition within the EU.

We can clearly see the technical difficulties that the intended proposal arises, as a result of commitments undertaken outside the EU by each Member States, but also potentially between them. To break this deadlock, one could consider creating a separated tax from the corporate tax, for example an indirect tax such as VAT. But such a process would appear to be highly artificial and likely to generate strong reactions from our non-EU partners, who might be tempted to introduce a similar sanction measure, generating even more disharmony in the rules of taxation of the new economy.

It is understandable that there are many technical difficulties and not much room for maneuver for a form of EU "equalisation tax" because of the international commitments entered into by the Member States. There is also a risk of contradiction with the other initiatives of global harmonisation of the "tax play book" applicable to all the economic actors. This is probably why the press release of the leading EU States behind this initiative from September 16 seems to cautiously set aside the idea of such separate tax, and focuses more on the efforts for the revision of the definition of permanent establishment, in order for such concept to be more aligned with the digital age.

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