On 21 March 2018 the European Commission proposed a legislative package aimed at introducing a common European taxation framework for digital services. This includes a proposal for a Council Directive laying down rules relating to the corporate taxation of a significant digital presence (Digital Services Tax Framework Directive) and a proposal for a Council Directive on a common system of a digital services tax on revenues resulting from the provision of certain digital services (Digital Services Tax Directive). While the former proposes to amend European corporate tax rules in order to allow the application of tax on profits where businesses have “significant interaction with users through digital channels”, the latter proposal is a response to a request by certain Member States arguing the necessity of the prompt introduction of an interim tax on digital services.

The proposed Digital Services Tax Directive defines a “taxable revenue” as resulting from the provision of 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.

The proposed Digital Services Tax Directive explicitly exempts from (2) the supply by trading venues and systematic internalisers (SIs) of any of the services referred to points (1) to (9) of Section I of Annex I to Directive 2014/65/EU on markets in financial instruments (MiFID II). This exemption applies to trading venues and SIs as defined in Articles 4(1)(24) and (20) MiFID II respectively. Given that the definition of a “taxable person” under the proposed legislation is not limited to EU persons, it is unclear whether and how the proposed tax would prospectively apply to non-EU trading venues.

The legislative proposals will be submitted to the Council (Member States) for adoption and to the European Parliament for consultation. Unanimity amongst Member States will be required for the adoption of the legislative acts.