EL replies to the European Commission public consultation on fair taxation of the digital economy

Following a narrative that the current tax framework does not fit with modern realities, the European Commission ran a public consultation between October 2017 and January 2018 with the objective of defining the approach which would ensure fair taxation of the digital economy. EL replied to the consultation by underlining the primacy of subsidiarity principle in gambling regulation, outlining the relation between taxation and pay-out rates and addressing the issue of taxation and illegal operators. Following the synopsis report which is expected to be published in the following weeks, the Commission says it intends to take action (most likely by proposing legislation) before summer 2018. Given the fact that this initiative is a part of a broader international discussion, the Commission intends to take into account the OECD activities on this issue. In its public submission, EL underlined the primacy of subsidiarity principle in gambling regulation, outlined the relation between taxation and pay-out rates and addressed the issue of taxation and illegal operators.

The current tax framework does not fit with modern realities

Following a narrative that the current tax framework cannot capture activities which are increasingly based on intangible assets and data, the European Commission ran a public consultation on fair taxation of the digital economy between October 2017 and January 2018. The objective of the consultation was to define the approach which would ensure a fair and effective taxation model while supporting public revenue and a level playing field across businesses.

Highlights of EL submission

  • Gambling regulation and the subsidiarity principle. As recognised in more than 40 preliminary rulings of the European Court of Justice, gambling is a field of particularly sensitive nature where for the overriding reasons of protection of public order and consumers regulation is best enacted at the national level. Gambling regulation needs to strive for coherence and ensure that the players are not overly stimulated to gamble.
  • A gambling operator does not become legal just by paying tax. Legal gambling operators are those recognised as such by the national governments. It is not because an operator pays a VAT or corporate tax of some form that they can be considered legal.
  • Gambling regulation, taxation and pay-out rate. Taxation levels and pay-out rate are both closely related to the competitiveness of a respective product and the danger it represents for consumers if not properly protected. Whether a gambling service is taxed at 30% of the GGR or the stakes or, at 10 % of GGR or the turnover, or not at all makes a more than substantial difference regarding the pay-out rate that the gambling provider is able to offer to players. The pay-out rate is also one of the most important factors that contribute to the risk of addiction – the higher the pay-out rate, the more attractive the game for players and the more dangerous it is if not properly regulated.
  • Illegal operators and taxation. Many illegal operators are based in countries with extremely low corporate taxation such as Malta and Gibraltar. When they offer their products in countries where they do not hold a license – while paying the low corporate tax of Malta and Gibraltar – they represent an unfair competition to the legal operators and are harmful to the consumers by offering substantially higher pay-out rates which can easily lead to addiction.

Next steps

The fair taxation of digital economy initiative is a part of a broader international discussion and linked to the activities of the Organisation for Economic Co-operation and Development  (OECD). Following the synopsis report expected to be published in the following weeks, the Commission says it intends to take action (most likely proposing legislation) before summer 2018, while taking into account OECD activities on this matter. Namely, OECD announced publishing its own report on how best to tax the digital economy during the G20 finance ministers meeting in Washington in late April.

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EL antwortet der Europäischen Kommission im Rahmen der öffentlichen Konsultation zur fairen Besteuerung der Digitalwirtschaft

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