Documents considered by the Committee on 6 March 2019 Contents

7Digital Services Tax

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; scrutiny waiver granted; updates requested; drawn to the attention of the Treasury Select Committee

Document details

Proposal for a Council Directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services

Legal base

Article 113 TFEU; special legislative procedure; unanimity

Department

HM Treasury

Document Number

(39585), 7420/18 + ADDs 1–3, COM(18) 148

Summary and Committee’s conclusions

7.1In its report on 28 November 201836 the Committee declined to grant the Government a scrutiny waiver to participate at Economic and Financial Affairs (ECOFIN) Council on 4 December 2018, in relation to the European Commission’s proposal to introduce an EU-wide tax on an interim basis applicable at three per cent on certain digital activities for which user participation is considered to constitute an important source of value.

7.2The Committee declined to grant a waiver not because of the proposal itself—which, it noted, aligned closely with the Government’s own proposal to introduce a Digital Services Tax (DST) from April 2020—but because the Financial Secretary to the Treasury (Rt Hon. Mel Stride MP) had not provided sufficient information regarding either the specifics of the latest compromise text or the outcomes that would be acceptable to the Government.

7.3Following a meeting of the Committee of Permanent Representatives to the European Union (COREPER) on 30 November 2018 the Austrian Presidency circulated a document37 which conceded that that there was not sufficient support to introduce the proposed EU-wide digital tax on revenues for tech companies, given that unanimity is required in the Council to pass tax measures, and countries including Denmark, Sweden, Finland, and Ireland had indicated that they would not support the proposal.

7.4In an attempt to salvage the proposal, the day prior to ECOFIN, the French and German Governments issued a “Franco-German joint declaration on the taxation of digital companies and minimum taxation”38 in which they proposed to scale back the scope of the Directive to a three per cent levy which would only apply to the revenues that tech firms make from online advertising, and to apply the Directive from 2021. Ministers considered the document at the Council meeting the following day, and it was agreed that the Council working group should continue its work on the basis of both the latest Presidency compromise text and the new elements proposed by France and Germany, with the aim of reaching an agreement as soon as possible.39

7.5The Minister provided the Committee with an update on these developments in a letter on 22 December 2018,40 in which he stated that the Austrian Presidency had since updated the draft Directive to reflect the Franco-German proposal and that technical negotiations would resume in the new year. The Minister indicated that the Government thought the Franco-German proposal “constructive”, and said that “the narrower scope will address some concerns the government had about potential spillovers under the previous Directive, which is welcome”, but noted that further work was necessary on a number of points, notably the scope of the proposal.

7.6The Minister also addressed a number of other points raised by the Committee in its previous report, stating that:

7.7On 26 February 2019 the Minister provided the Committee with a further update, in advance of an anticipated vote at the upcoming ECOFIN on 12 March.41 The Minister stated that “the concerns outlined in our previous letter remain” and indicated that the Government was specifically seeking further information about “the allocation of taxable revenues between Member States and some issues relating to scope.” Officials subsequently provided more detailed clarification of these concerns, which is reflected in our conclusions below.

7.8If a vote is held, the Minister indicates that the Government’s support would “depend on the extent to which our concerns are addressed”: he therefore effectively requests a scrutiny waiver to support the proposal if it addresses UK concerns.

7.9We have taken note of the Minister’s update regarding the Commission’s proposal for a Digital Service Tax, in advance of an anticipated vote at the upcoming ECOFIN on 12 March 2019. Following the failure of the Commission’s proposal to secure the unanimous support of the Member States in advance of ECOFIN on 4 December 2018, a Franco-German proposal has been brought forward which would reduce the scope of the proposal to the revenue which digital businesses make from advertising.

7.10The Minister indicates that he considers the proposal “constructive”; however, he indicates that the Government retains some concerns about “the allocation of taxable revenues between Member States and some issues relating to scope”.

7.11Further contact with officials clarified that these concerns are as follows:

7.12The Minister also reiterates that the outcome of these discussions does not affect the Government’s intention to implement a UK Digital Services Tax from April 2020 or the scope of that proposal, which will be wider than the Franco-German proposal.

7.13On this basis the Minister requests a scrutiny waiver to participate at Council, with the Government adapting how it votes to the extent to which its concerns are addressed. We are willing to grant the Government a waiver to support the proposal at ECOFIN Council on 12 March 2019, subject to the Government securing a satisfactory outcome, particularly with respect to the place of taxation provisions. In the meantime we retain the proposal under scrutiny, and draw this report to the attention of the Treasury Select Committee.

Full details of the documents

Proposal for a Council Directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services: (39585), 7420/18 + ADDs 1–3, COM(18) 148.

Previous Committee Reports

Forty-sixth Report HC 301–xlv (2017–19), chapter 14 (28 November 2018); Thirty-first Report HC 301–xxx (2017–19), chapter 4 (13 June 2018); Fifth Report HC 301–v (2017–19), chapter 10 (13 December 2017).


36 Forty-sixth Report HC 301–xlv (2017–19), chapter 14 (28 November 2018).

37 Proposal for a Council Directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services—General approach (29 November 2018).

38 Franco-German joint declaration on the taxation of digital companies and minimum taxation (3 December 2018).

39 Council of the European Union, Economic and Financial Affairs Council (4 December 2018).

40 Letter to the Chair of the European Scrutiny Committee (22 December 2018).

41 Letter to the Chair of the European Scrutiny Committee (26 February 2019).




Published: 12 March 2019