A new European Union agenda was launched on September 21 to ensure that the digital economy is taxed in a fair and growth-friendly way. Adopted by the European Commission, the Communication sets out the challenges member states currently face when it comes to acting on this pressing issue and outlines possible solutions to be explored.

According to a European Commission press release, the aim is to ensure a coherent EU approach to taxing the digital economy that supports the bloc’s key priorities of completing the Digital Single Market and ensuring the fair and effective taxation of all companies.

The September 21 Communication paves the way for a legislative proposal on EU rules for the taxation of profits in the digital economy, as confirmed by President Jean-Claude Juncker in the 2017 State of the Union. Those rules could be set out as early as spring 2018. Today’s paper should also feed into international work in this area, notably in the G20 and the OECD.

“Modern taxation rules are essential to leverage the full potential of the EU’s Digital Single Market and to encourage innovation and growth,” said Andrus Ansip, Vice-President for the Digital Single Market. “This means having a modern and sustainable tax framework which provides legal certainty, growth-friendly incentives and a level playing field for all businesses. The EU continues to push for a comprehensive revision of global tax rules to meet the new realities.”

In turn, Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, said: “There is broad agreement that the growing digitalisation of the economy creates huge economic opportunities. At the same time, our tax systems should evolve to capture new business models while being fair, efficient and future-proof. It’s also a question of sustainability of our tax revenues as traditional tax sources come under strain. Not least, it’s about maintaining the integrity of the Single Market and avoiding fragmentation by finding common solutions to global challenges.”

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs added that the Commission’s goal has always been to ensure that companies pay their fair share of tax where they generate profits.

“Digital firms make vast profits from their millions of users, even if they do not have a physical presence in the EU,” he said. “We now want to create a level playing field so that all companies active in the EU can compete fairly, irrespective of whether they are operating via the cloud or from brick and mortar premises.”

According to the Commission, the tax rules in place today were designed for the traditional economy and cannot capture activities which are increasingly based on intangible assets and data.