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ECOFIN discusses the Commission’s proposals for taxation of digitalized activity

Executive summary

On 7-8 September 2018, the informal meeting of the Economic and Financial Affairs Council (ECOFIN or the Council) took place in Vienna, Austria. During the second day of the meeting, part of the agenda was the taxation of the digital economy, based on the proposals of the European Commission from March 2018. The finance and economic affairs Ministers of the European Union (EU) Member States discussed the short term solution of a temporary tax on digital turnover and a long term solution involving the introduction of new rules for corporation tax.

At the meeting, the Council supported the implementation of the short-term solution of the digital services tax (DST) as soon as possible. According to the announcement of the Austrian Minister of Finance Hartwig Löger, the prospect of reaching agreement by the end of this year is realistic.

The Ministers also agreed that there is a need to prepare further measures against no-tax and low-tax systems and to develop in the Organisation for Economic Co-operation and Development (OECD) an EU position with regard to this taxing digitalized activity that is as united as possible. This also underlines the position held by France and Germany, which have suggested a “sunset clause” making the digital services tax a temporary levy valid until an agreement has been reached at an international level.

Detailed discussion


On 21 March 2018, the European Commission (the Commission) issued two proposals (The Proposals) for new Directives to provide methods to tax digitalized forms of business activity.1

The Commission’s proposals focus on a two-phased approach: an interim solution, referred to as the Digital Services Tax (The DST or DST proposal) and a longer term Council Directive setting forth rules relating to the corporate taxation of a significant digital presence (SDP or the Significant Digital Presence proposal).

The DST proposal is for a gross revenues (i.e., turnover) tax, set at a uniform rate of 3% across all EU Member States, while the Significant Digital Presence proposal focuses on a new concept of digital permanent establishment (PE), along with revised profit attribution rules. The DST will apply only until the SDP approach has been implemented.

Both approaches would be delivered by new Directives. The initial timeline for final adoption was by 31 December 2019, for 1 January 2020 transposition into national law.

A few days before the issuance of the Commission’s proposals, the OECD released Tax Challenges Arising from Digitalisation – Interim Report 2018 (the Interim Report) in connection with Action 1 of its Action Plan on Base Erosion and Profit Shifting (BEPS).2 The Interim Report sets out the BEPS Inclusive Framework’s (IF) agreed direction of work on digitalization and the international tax rules through 2020. The Interim Report provides an in-depth analysis of the main features commonly found in certain highly-digitalized business models and value creation in the digitalized age.

The Interim Report concludes that there is no consensus on the merits of, or need for, interim measures, noting that a number of countries are opposed to such measures on the basis that they will give rise to risks and adverse consequences. It does, however, include a framework that can be considered when designing interim measures to address the tax challenges of digitalization, as well as an outline of the possible long-term risks that will need to be addressed in designing interim taxes.

An update on this work will be provided in 2019, as BEPS IF members work towards a consensus-based solution by 2020.

ECOFIN meeting outcomes

On 7-8 September 2018, the informal ECOFIN meeting took place in Vienna, Austria and taxation of the digital economy was one of the main discussion points.

The challenge and necessity of taxing the digital economy fairly and effectively has been identified by the Council. The Ministers agreed that the adaption of the tax systems to the digital era is a key priority. Observations raised by participants during the meeting confirmed that there is broad support in the Council, especially for preparing further measures against no-tax and low-tax systems. The Ministers want to make sure that the profit of large companies is taxed in a fair way and that there is an increase in the resulting tax revenues.

The press release that was published at the end of the second day of the informal ECOFIN meeting considered that the implementation of the DST is possible by the end of this year. The Austrian Minister of Finance Hartwig Löger announced that “based on the European Commission proposal we want to implement a digital services tax as soon as possible,” and he believes that it is realistic for an agreement to be reached by the end of this year.

The Presidency’s pre-meeting note highlighted that the long-term comprehensive solution to be found in the Council will not only have to be compatible with the EU internal market, but also should take into account the ongoing work in the OECD. Due to the complexity of the agreement on a long-term global approach and the fragmentation from uncoordinated unilateral measures taken by EU Member States, the note acknowledges that a uniform approach for an interim solution, without prejudice to work on long-term approaches, is needed.

From the discussions during the meeting, it also became clear that the EU needs to develop in the OECD an EU position with regard to the digital economy that is as united as possible. France and Germany recommended the introduction of a sunset clause in the proposal of the Commission providing that, as soon as there is a decision at the level of the OECD, the approach of the OECD members will replace the European approach. This means that the DST would be a temporary levy valid with a defined end-date. It is understood that this end-date would be linked to an OECD agreement on a longer-term approach, (although it is unclear how this would be drafted as a fixed date may be legally required, rather than a reference to the OECD reaching agreement).


Both the direction and timetable that the EU may follow in regard to the taxation of the digital economy will impact a broad group of companies engaged in digital transactions. Companies undertaking digital transactions should consider the impact of these proposed changes on their existing operating models and closely monitor developments in the coming months. Notably, many other jurisdictions are closely monitoring these developments and may consider similar legislative action.


1. See EY Global Tax Alert, European Commission issues proposals for taxation of digitalized activity, dated 21 March 2018.

2. See EY Global Tax Alert, OECD releases interim report on the tax challenges arising from digitalization, dated 16 March 2018 and EY Global Tax Alert, The OECD’s interim report on tax challenges arising from digitalisation: An overview, dated 20 March 2018.

EYG no. 010825-18Gbl

Download this Tax Alert as a PDF file.

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