ECON/TAX3 exchange of views with Commissioner Moscovici

An exchange of views with Commissioner Moscovici was co-organized by the European Parliament’s ECON and TAX3 committees with the purpose of discussing the new digital taxation proposal issued by the European Commission and the aggressive tax planning of 7 Member States identified in the context of the European Semester.

GUE/NGL’s speaker was MEP Marie-Pierre Vieu (Front de Gauche), coordinator of the GUE/NGL working team on TAX3.

What was the meeting about?

1. On the European Commission’s Digital Taxation Proposal

On March 21st, the European Commission presented a proposal for new rules to tax the activity of businesses in the digital economy.

According to the European Commission, digital businesses – e.g. companies whose main services are provided online – pay an average effective tax rate of just 9.5 %, compared with the 23.3 % that traditional businesses pay.

What does the Commission propose?

  1.  A long-term solution, also called the ‘comprehensive solution’. The directive aims to address situations where companies offer digital services in a country, but member states cannot tax those activities, because the firms do not have a physical presence in that country (also known as a ‘permanent establishment’).
  2. A short-term solution, also called the “targeted solution”. It proposes a 3 % tax on gross revenues (a turnover tax) based on where a company’s users are located rather than where its headquarters is. This targeted solution would be aimed at companies generating at least €50 million of taxable revenue inside the EU, and having a global turnover of more than €750 million. In the commission’s own estimates, this tax would apply to approximately 120-150 big tech companies. The proposal identifies as ‘taxable revenues’ the following services:
    1. the placing on a digital interface of advertising targeted at users of that interface;
    2. the making available to users of a multi-sided digital interface which allows users to find other users and to interact with them, and which may also facilitate the provision of underlying supplies of goods or services directly between users;
    3. the transmission of data collected about users and generated from users’ activities on digital interfaces.

What do we think about the proposal?


  1. The long-term solution proposed by the EU Commission is a step in the right direction, because it focuses on the digitalization of the entire economy and not just the tech sector. However, it should aim to better define where profits are actually made and where they should be taxed, as currently the proposal on profit attribution is based on the definition of functions, risks and assets, something which has been used in the context of the arm’s length principle to contractually locate them in the most convenient jurisdictions for tax purposes.
  2. There are significant problems with the short-term solution proposed by the Commission. The 3% turnover tax on tech giants is only targeted at a handful of big tech companies, and will not prevent businesses exploiting our outdated tax system to systematically dodge billions of euros in tax every year. Moreover, the 3% turnover tax would amount to a 10% effective corporate tax, roughly above the 9.5% effective tax rate companies pay in this sector today, and quite underneath the less than 25% average corporate tax rate in the EU today. There are also concerns that governments will focus all their energy on delivering short term ‘headline grabbing’ wins at the expense of making progress on the long-term solutions that will deliver lasting change.
  3. It is also important to note that the entire economy is currently being digitalized. Even companies in more traditional sectors can quickly shift their profits or relocate intangible assets such as patents to tax havens in order to avoid paying their fair share of tax. Therefore, a more comprehensive solution needs to be thought, which considers a change in the definition of permanent establishments.
  4. Another issue not covered in the proposal is the avoidance of VAT that is achieved by digitalized cross-border transactions, where the absence of a taxable presence does not allow for tax authorities to tax the sales made in their countries.

Why did the Commission present this proposal? A few events have taken place in the last years that allow to understand the proposal…


  • On July 2017: French “Google Tax” was ruled illegal by Paris court (tax authority were not allowed to assume a permanent establishment of Google Ireland in France)
  • On September 2017: Some EU member states (France, Germany, Spain, and Italy) call for an EU Equalisation tax.
  • On 21 September 2017: the Commission issues a Communication
  • On 5 December 2017: Council conclusions favour equalisation tax as quick fix, highlight the need to find solutions at the global (OECD) level, note that the permanent establishment definition should be reconsidered.
  • On January 2018: Italy introduces a web tax unilaterally. As of January 2019, a withholding tax of 3% will be applicable on certain digital transactions (details still to be specified by a decree). In addition, permanent establishment rules were amended in line with OECD/G20 BEPS Action 7 (economic presence without physical presence is considered to constitute a permanent establishment)
  • On 5 March 2018: the US warned the EU about any unilateral move regarding the taxation of tech giants, without proposing a concrete timeline or solutions to address the issue.

2. On the problems of aggressive tax planning highlighted by the EC in the European Semester Reports


Another topic addressed by Moscovici was the European Semester report and the aggressive tax planning indicators which have served to highlight 7 Member States  in March 2018 due to the aggressive tax planning opportunities they provide[1]:

  • Belgium: its tax system remains complex, with tax bases eroded by numerous exemptions, deductions and reduced rates.
  • Cyprus: Cyprus’ Corporate Income Tax (CIT) rules are used by companies engaged in aggressive tax planning[2] because of the absence of withholding taxes on dividend, interest and royalty payments by Cyprus-based companies. This, together with the corporate tax residency rules and notional interest deduction regimes, may lead to those payments escaping tax if they are also not subject to tax in the recipient jurisdiction.
  • Hungary: Hungary’s tax rules may be used by multinationals in aggressive tax planning structures, as shown by the large capital flows entering and leaving the country as a share of GDP through ‘special purpose entities’[3], combined with the absence of withholding taxes. The absence of withholding taxes on dividend, interest and royalty payments made by companies based in Hungary may lead to those payments escaping tax altogether, if they are also not subject to tax in the recipient jurisdiction.
  • Ireland: Ireland’s high inward and outward Foreign Direct Investment (FDI) stock can only partly be explained by real economic activities taking place in Ireland. The high level of dividend payments and charges for using intellectual property, suggest that the country’s tax rules are used by companies that engage in aggressive tax planning. The absence of withholding taxes on dividend payments made by companies based in Ireland suggest that Ireland’s corporate tax rules may still be used in tax avoidance structures. The existence of some provisions in bilateral tax treaties between Ireland and some other countries may be used by companies to overrule for tax avoidance as well.
  • Luxembourg: its corporate tax reform sought to boost competitiveness by lowering tax rates. In addition to lack of withholding tax on interest and royalty payments, there may be an exemption from withholding tax on dividends paid to a company resident in a country that has a bilateral tax treaty with Luxembourg and is fully subject to an income tax comparable to the Luxembourg corporate income tax.
  • Malta: Malta’s high inward and outward FDI stock is only partly explained by real economic activities taking place in the country. The high level of dividend, interest and royalty payments as a percentage of GDP suggests that the country’s tax rules are used by companies to engage in aggressive tax planning. Companies might choose to invest in Malta to benefit from these corporate tax rules. The large majority of FDI is held by ‘Special Purpose Entities’. The absence of withholding taxes on dividends, interest and royalty payments made by Malta based companies may lead to those payments escaping tax altogether.[4]
  • The Netherlands: A large share of FDI stocks is held by so-called ‘special purpose entities’. The absence of broad withholding taxes on dividend payments by co- operatives, the possibility for hybrid mismatches by using the limited partnership (CV) and the absence of withholding taxes on royalties and interest payments facilitate aggressive tax planning.

GUE/NGL MEP Marie- Pierre Vieu questioned the short-term solution for not being bold enough to aim at obtaining a higher revenue from digital companies that have managed to take advantage of tax planning in a way to end up paying on occasion as little as 1% corporate tax throughout the world; as well as noting that the existence of tax havens in the EU is rather part of a structural problem.

On his side, Commissioner Moscovici commented that even when the European Commission had never attached the 7 countries listed for their aggressive tax planning as being tax havens, as NGOs have been doing for a long time, they did receive a lively response from such Member States, and some have even completely denied their status.

Moscovici also denied that the short term solution was not sufficiently daring, as in the end, the Commission expects EU Member States to collect revenues from this tax of around  5 billion Euros. However, that in itself could be one of the problems, as tax administration would not be interested in moving to a more progressive solution as they would be happy enough with the additional money in their pockets.


Watch the video of the joint session here


[1] See

[2] The author considers aggressive tax planning equivalent to tax avoidance. However, the wording of the European Commission is respected in this section.

[3] A special purpose entity is a legal entity that has little or no employment, operations or physical presence in the jurisdiction where it is located, and is related to another corporation, often as its subsidiary, which is typically located in another jurisdiction.

[4] Malta has introduced a Notional Interest Deduction (NID) regime (available from 2018), which will allow companies and foreign companies with permanent establishments in Malta to claim a deduction on their equity against their tax base. The Commission does not consider this a risk. However, it is probable that it ends up being used for tax avoidance in the same way as interest deduction is.