On 21 March 2018, the European Commission put forward a proposal for a Community Directive to regulate the taxation of companies with a significant digital presence and adapt the concept of Permanent Establishment to the Digital sphere (Digital Permanent Establishment).
Tax authorities are now starting to realise that an increasing number of companies are working in digital fields, that the digital economic is now present and that they must therefore adapt to the digital era.
On 21 March 2018, the European Commission put forward a proposal for a Community Directive to regulate the taxation of companies with a significant digital presence and adapt the concept of Permanent Establishment to the Digital sphere.
The aim of this directive is to address the challenges of the digital economy in terms of taxation, and consider the presence of a Digital Permanent Establishment in the event that there is a “significant virtual presence”, especially as regards completely dematerialised digital activities.
This Directive was put forward in conjunction with other particularly interesting and significant legislative proposals, such as the Proposal for the Directive on the common system of a digital services tax (DST) on revenues resulting from the provision of certain digital services (it would be 3% on the revenues produced by these services) also known as the “Google Tax”, or Communications and Recommendations to establish a “modern, fair and effective” tax framework for the digital economy. One of the proposals also includes a plan to implement the digital economic presence in tax treaties between EU Member States and third countries.
The EU proposal is expected to be incorporated into the legislation of member nations by 01 January 2020.
The significant digital presence of a digital business activity is measured on the basis of three basis criteria: revenues, users and contracts. And the logical consequence of a connection with a territory through a digital business activity will be the profits attributable to this significant digital presence.
It should be noted that in the digital era, a staff presence is not necessary for the purposes of considering that a company wholly or partly performs its business from a specific place. In other words, it is possible to determine whether or not the Permanent Establishment of a company exists without having human resources in said territory.
If it is ultimately determined that a company or person has a permanent establishment in Spain (and a third territory), it would mean that, regardless of the residence for tax purposes, this subject would be submitted to the tax sovereignty of Spain (or the third territory), with the consequent assumption of the corresponding tax obligations (Digital Permanent Establishment). This will have great importance for and a significant impact on digital operators.
Bettina Náray
