Economy

European Union takes another step towards taxing and combating tax evasion from digital platforms

Commission launched package that introduces automatic information sharing among member countries, but still awaits OECD' suggestions to institute new ways of taxing technology companies

apple store facade
The announcement was made on the same day that the organization lost a legal battle with Apple. Photo: EQRoy/ Shutterstock
  • The announced package is just the first part of an EU mobilization to tax large digital platforms in general;
  • According to the European Commission, technology giants do not always adequately report their revenue, which prevents member countries from taxing their operations;
  • In Latin America, countries are also beginning to discuss ways to tax technological platforms.

On Wednesday, the European Union launched a new tax package that introduces, among other things, the automatic sharing of information about technology companies among member countries as a way to prevent fraud and tax evasion. The announcement was made on the same day that the organization lost a legal battle with Apple that began in 2014 over an alleged billion-dollar delay in tax payments to Ireland.

Ireland grants tax benefits to technology companies, which, in the organization’s view, is unfair to other members of the European Union. Also in 2016, the European Commission, which functions as the EU executive branch, decided that the benefits granted between 1991 and 2015 were illegal and that Apple should effectively pay the taxes due to Ireland, with monetary adjustment. In the case of Apple, which could have to return more than 13 billion euros to Ireland, the bloc can still appeal.

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The announced package is just the first part of an EU mobilization to tax large digital platforms in general. According to the European Commission, technology giants do not always adequately report their revenue, which prevents member countries from taxing their operations. The first step to change that it’s to introduce an automatic exchange of information on income and revenues generated by sellers on digital platforms between the countries’ tax administrations.

The tax package does not, however, include new digital taxes and the establishment of a minimum level of effective taxation, which is expected to be launched in September. For this step, the Commission awaits the conclusion of a proposal for taxing digital activities that is being prepared by the Organization for Economic Cooperation and Development (OECD).

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In Latin America, countries are also beginning to discuss ways to tax technological platforms. Since the beginning of June, these firms have now to pay Value-Added Tax (VAT) on all services provided, and Income Tax (ISR) over profits earned from operations within Mexico, even if their offices are located abroad.

The Brazilian government, according to behind-the-scenes information from Folha de S.Paulo, is also studying ways to introduce a tax on e-commerce.