Kopi af SAU alm. del - bilag 202 - Begrundet udtalelse fra det hollandske 2. kammer (repræsentanternes hus) og det maltesiske repræsentanternes hus om KOM (2018) 147 og 148 - digital beskatning

Mr Jean-Claude Juncker
President of the European Commission
Rue de la Loi 200
B-1049 Bruxelles
Belgium
Re: Reasoned opinion (subsidiarity) regarding the EU proposals for a Council Directive laying down
rules relating to the corporate taxation of a significant digital presence (COM(2018) 147), and a
Council Directive on the common system of a digital services tax on revenues resulting from the
provision of certain digital services (COM(2018) 148)
Dear Mr Juncker,
The House of Representatives of the Netherlands has examined the EU proposals for a Council
Directive laying down rules relating to the corporate taxation of a significant digital presence
(COM(2018) 147), and a Council Directive on the common system of a digital services tax on
revenues resulting from the provision of certain digital services (COM(2018) 148) in terms of the
principle of subsidiarity.
I am writing to inform you that the opinion of the House of Representatives with regard to the
subsidiarity of the aforementioned proposals is negative.
The House of Representatives agrees that taxing the digital economy and reforming the financial
system in order to achieve this are important goals, but takes the view that taxation and taxation policy
are primarily a concern of the member states themselves, and that member states can also achieve this
reform without European harmonisation or interference. The House also has its doubts about the
potential benefits of a European proposal compared to a national approach, especially since member
states are already working on a joint strategy in an OECD context.
As far as the legal basis is concerned, the House considers Article 115 of the Treaty on the
Functioning of the European Union (TFEU) to be the appropriate legal basis for both proposals. The
House therefore also disagrees with the European Commission’s choice of basing the proposal
COM(2018) 148 on Article 113 of the TFEU, because, in its view, it is clear that in this proposal the
purpose of the taxation is also a levy on profit. As such, this proposal, as is also the case for proposal
COM(2018) 147, does not actually concern indirect taxation, for which Article 113 is intended.
The annex sets out the contributions to the debate from the different parliamentary parties, in which
they explain their standpoints with regard to subsidiarity and other matters in greater detail. I would
appreciate your taking these contributions into consideration in your reply to this letter.
A copy of this letter will also be sent to the European Parliament, the European Council and the
Government of the Netherlands.
Yours sincerely,
The Speaker of the House of Representatives,
Khadija Arib
Europaudvalget 2018
KOM (2018) 0148 Bilag 4
Offentligt
Annex: Contributions of the different parliamentary groups to the debate
The House of Representatives of the Netherlands has 150 seats. These seats are distributed as follows:
 People’s Party for Freedom and Democracy - VVD (33)
 Party for Freedom - PVV (20)
 Christian Democratic Appeal - CDA (19)
 Democrats 66 - D66 (19)
 Green Left - GL (14)
 Socialist Party - SP (14)
 Labour Party - PvdA (9)
 Christian Union - CU (5)
 Party for the Animals - PvdD (5)
 50PLUS (4)
 Reformed Political Party - SGP (3)
 DENK (3)
 Forum for Democracy - FvD (2)
In evaluating the proposals in terms of subsidiarity, eight parliamentary groups provided an
explanation of their views.
Standpoints regarding subsidiarity
The members of the VVD parliamentary group take the view that there are sufficient arguments for
applying a subsidiarity test to the proposals under discussion. They have the following reasons for this.
General:
 Taxes are primarily a concern of the member states themselves. A European solution should
only be considered in the case of major, serious problems that the member states are unable to
resolve themselves. The VVD members agree that the taxation of the digital economy and
reform of the financial system to achieve this is important, but note that many member states
are currently reaching solutions without European harmonisation or interference, such as the
French tax on visual content and the Hungarian tax on advertisements. They therefore have
doubts about the benefits of a European proposal, especially since these national measures can
apparently resolve the problem effectively without European interference.
 Various member states have already joined forces in reviewing taxation for the digital
economy within an OECD context. A definitive report outlining solutions for this issue is
expected to be published in 2020. It therefore appears that member states are already proving
able to reach joint solutions without European intervention.
 The House of Representatives has previously indicated that it will only consider solutions
involving supranational measures on taxation in cases where national measures prove
ineffective and it also previously applied a subsidiary test (‘drew a yellow card’) in the case of
the proposals concerning the CCCTB. The current proposals are related to this and provide a
stepping stone towards these – previously rejected – proposals. The VVD considers this to be
problematic.
European Commission’s arguments:
 The Commission argues that the fact that companies conduct cross-border trade could itself be
a reason for justifying European harmonisation. As far as the VVD is concerned, this is
jumping the gun. Any assessment of whether European intervention is necessary should in
part be based on the fact that member states are themselves unable to resolve the problem. The
general arguments outlined above demonstrate that the member states are already applying
initiatives, both individually and jointly, to resolve the problem. For this reason, the
Commission has not provided persuasive arguments to demonstrate that no solution could be
found without European intervention.
 The Commission argues that European harmonisation has added value that transcends the
actions of individual member states, jointly or otherwise. There is no further explanation
provided for this, which makes it, in the view of the VVD, not convincingly proven. In
addition, the Commission itself states that various member states are taking measures. It does
not claim that these measures are inefficient and would therefore not be workable, but merely
that this would result in a fragmented policy. As such, the Commission has not provided
sufficient proof that supranational European policy should take precedence over national
policy.
 The Commission argues that a joint, harmonised tax creates a level playing field with regard
to competition. This is untrue for as long as the other fiscal provisions and taxes in the
member states differ from each other. The Commission’s proposal therefore fails to achieve its
intended objective which raises the question of whether member states would be better
advised to apply policy at national level.
 The Commission asserts that it would be undesirable for a member state to take ‘unilateral’
and ‘divergent’ action. The VVD takes the view that acting unilaterally and divergently is part
of a member state’s sovereignty. Enforced joint action can only be permitted if countries
decide on it – jointly and divergently – or if a national solution alone provides no remedy. The
VVD takes the view that the Commission has failed to prove this convincingly.
 The Commission argues that as soon as a measure affects the ‘internal market as a whole’,
coordinated action at European level is the ‘only’ option. The VVD questions this
argumentation, both in the case of the assumption that measures taken nationally will affect
the internal market as a whole and the conclusion that, if this were the case, a European
solution would be the only ‘appropriate way forward’. They believe that this dismisses the
principle of subsidiarity too easily.
 The Commission states that the proposed measure is proportionate and does not interfere with
member states’ freedom to set policy. The members of the VVD do not agree with this
assertion, since it imposes an obligation to levy a specific (temporary) tax.
 The Commission argues that the member states cannot take national measures without
‘hampering the single market’. The members of the VVD consider this to be a remarkable
accusation in view of the right of a member state to set its own national policy that may
possibly conflict with the principle of subsidiarity.
The members of the PVV parliamentary group consider this proposal to be at odds with the
subsidiarity principle. They refute the argument that only an EU solution, implemented by the EU, is
possible. The collection of taxes and taxation policy are a national power by definition, in which no
EU interference is appropriate. If it should appear that actions are necessary, this should of course only
be in an OECD context.
The opinion of the members of the CDA parliamentary group with regard to the subsidiarity of the
long-term solution (COM(2018)147) is positive. It concerns an issue of profit attribution and these
members recognise the advantages of maximum possible agreement between countries when it comes
to profit attribution. This means that coordination at OECD level takes preference over agreement at
EU level and, if that proves unsuccessful, coordination at EU level takes precedence over national
regulations. The taxation of digital services should not be seen as a stepping stone towards a
CC(C)TB.
The opinion of the members of the CDA parliamentary group with regard to the subsidiarity of the
temporary solution (COM(2018)148) is partly positive. The taxation of profit is not a concern of the
European Union, but of the member states themselves. This also applies to the introduction of new
taxes. However, indirect taxation is covered by the powers of the European Union and the temporary
solution takes the form of an indirect tax on digital services. It is not clear to the members of the CDA
parliamentary group whether the European Commission has opted for an indirect tax for practical
reasons or because of its own powers.
The members of the D66 parliamentary group take a positive view with regard to the subsidiarity of
the EU proposals on taxation in the digital economy. According to these members, the objectives of
the proposal cannot be effectively achieved at the level of individual member states. Another key
factor is that efforts made within an OECD and G20 context have so far achieved unsatisfactory
results. The internet is a cross-border technology by definition. Companies in the digital economy
often operate beyond national borders. Since these companies often have limited or no actual physical
presence, measures are required in order to ensure that profit is as far as possible taxed where value is
created and in order to protect the basis for taxation. For the digital internal market to operate
effectively, it is therefore important that member states take concerted action in modernising taxation.
The European Commission’s proposals for a temporary and permanent solution contribute to
achieving this. These proposals also help create a level playing field and are therefore in the interests
of Dutch businesses and consumers. The D66 parliamentary group will monitor the further
implementation, feasibility and interaction with other international initiatives.
The members of the Green Left parliamentary group agree with the analysis below by the European
Commission, which describes why the two EU proposals are in line with the principle of subsidiarity:
“As digital businesses are able to operate across borders without having any physical presence, both
inside the Union and from third countries, uniform rules are needed to ensure that they pay taxes
where they make profits. Given the cross-border dimension of digital activities an EU initiative is
needed and adds value as compared to what a multitude of national measures could attain. A common
initiative across the internal market is required for a direct and harmonised application of the rules on
a significant digital presence within the Union so as to ensure a level playing field for all member
states and provides taxpayers with legal certainty. Unilateral and divergent approaches by each
member state could be ineffective and fragment the single market by creating national policy clashes,
distortions and tax obstacles for businesses in the EU. If the objective is to adopt solutions that
function for the internal market as a whole, the appropriate way forward is only through coordinated
initiatives at EU level.”
The members of the SP parliamentary group takes the view that digital companies that operate
‘without borders’ should also pay tax. They believe that it is reasonable to apply a subsidiarity test to
these proposals. They would like to see particular consideration given to the following issues:
 Taxation of turnover and profit is a competency of the member states. The fact that
agreements are made for member states to collect this new tax from large digital companies
does not undermine the subsidiarity of collection. The SP would like to know how the
European Commission’s initiative will be assessed with regard to this (apparently) new tax
base.
 In the Commission’s proposal 147 the place of business is expanded to a digital presence,
based on users, contracts and turnover. The members would like to know whether the
determination of these criteria is at odds with or in line with the subsidiarity principle.
 Proposal 148 proposes a uniform tax of 3% in order to prevent fragmentation. The SP takes
the view that this undermines the competency of member states to opt for a higher rate
because the notion of a ‘uniform rate’ appears to rule out a higher percentage.
 The SP would like to know whether the levying of the tax can actually be seen as an indirect
tax because it cannot be considered to be a ‘surcharge’ (like excise duty) or a fine since it is
levied on profit at source. This raises the question of whether invoking Article 113 in the case
of COM(2018) 148 is applicable.
The members of the PvdD parliamentary group take a negative view with regard to the subsidiarity
of both Directives. It has not become clear from both proposals whether they concern a direct or an
indirect tax, which stands in the way of a full-fledged subsidiarity check. In addition to this the PvdD
thinks Member States should have maximum policy and tariff freedom, and these proposals do not
make clear whether this is guaranteed.
The members of the PvdA parliamentary group consider this legislation to be in agreement with the
subsidiarity principle. In general, they recognise that direct tax policies are in principle reserved for
individual Member States. This does not detract from the fact that the Member States have large
common interests in this area. There is a broad international consensus that tax avoidance is
undesirable. There is also a broad consensus that tax avoidance can best be tackled internationally. In
addition, harmonization of tax legislation contributes to the better functioning of the internal market,
and harmonization helps to stop undesirable competition between Member States in the field of
taxation.
Digital companies such as Facebook and Google are characterized by the fact that they are no longer
tied to a physical location for their activities. Their profit derives from the provision of online services,
which is difficult for the national profit tax systems of the Member States to get a grip on. The
members of the PvdA parliamentary group note that the result is that these companies pay very little
tax in the European Member States. In order to correct this, the 'fixed base' concept in the profit tax
system needs to be adjusted. And because these digital companies operate online, independently of
their location, they are international in nature. Because these large companies, which are the subject of
this proposal, operate in all member states of the EU, there is an advantage to be gained from a
European approach. The alternative is a fragmented approach to the taxation of digital companies,
which can disrupt the digital economy that is still under development. In addition, a patchwork of tax
rules will create new opportunities for tax avoidance by these companies. The purely cross-border
business activities of the large tech companies in Europe justify taking a European approach above an
individual Member State approach. In view of the damage caused by a fragmented approach as a result
of different policies by individual member states, the members of the PvdA parliamentary group also
consider the proposal proportionate. In conclusion, the members of the PvdA parliamentary group take
a positive view of the subsidiarity of this EU proposal.
Standpoints regarding legal basis
The members of the VVD parliamentary group note that the Commission describes the tax as
‘characteristic for an indirect tax’. The VVD members question this comment, since the new tax is
intended to be levied on the profit of digital companies. Only because this is inherently problematical
in view of the digital economy, is the turnover taxed instead. However, the purpose of the tax is still to
tax profit. As such, in view of its purpose, the tax should be considered to be a direct tax (sui generis)
rather than an indirect tax. The VVD therefore believes that another legal basis from the Treaty on the
Functioning of the EU, for example Article 115 TFEU, would be more appropriate and suitable, if a
positive approach is adopted to the proposal, than the chosen Article 113 TFEU.
The members of the PVV parliamentary group take the view that, with these proposals, the EU is
acting unlawfully because there is no need to harmonise taxation in order to prevent distortions of
competition.
Tax legislation is a national power and must remain so.
The members of the CDA parliamentary group believe the legal basis to be partially appropriate.
The European Union sees Article 115 as the legal basis for the long-term solution (COM(2018)147)
and Article 113 for the temporary solution (COM(2018)148). These members consider Article 115 to
be the appropriate legal basis for both directives. The ultimate aim of the temporary solution is not to
harmonise various turnover taxes on digital services, but the decision to tax turnover was taken, as the
Commission itself admits, for practical reasons in order to harmonise taxation. The tax on turnover is
therefore the means and not the end. The CDA members also have their doubts about the temporary
nature of this tax on turnover of digital services, especially since the directive now contains no
specified horizon.
The members of the D66 parliamentary group have a positive opinion with regard to the legal basis
for both EU proposals and agree with the European Commission’s arguments. The European
Commission refers to Articles 46, 48, 53, paragraph 1, Article 62 and Article 91, paragraph 1 of the
Treaty on the Functioning of the European Union. The members of the D66 parliamentary group
consider this to be the right legal basis.
The members of the Green Left parliamentary group agree with the European Commission’s
arguments concerning the legal basis for the EU proposal.
The members of the SP parliamentary group take the view that proposal COM(2018) 147 falls
within the scope of Article 115 of the Treaty on the Functioning of the European Union.
The members of the SP parliamentary group do not feel that proposal COM(2018) 148 falls within the
scope of Article 113 of the Treaty on the Functioning of the European Union.
The members of the PvdA parliamentary group consider Article 46, Article 48, Article 53 (1),
Article 62 and Article 91 (1) of the Treaty on the Functioning of the European Union the appropriate
legal basis for both proposals.


TITHE AN OIREACHTAIS
AN COMHCHOISTE UM AIRGEADAS, CAITEACHAS POIBLI AGUS ATHCHÓIRIÚ,
AGUS TAOISEACH
Tuairim Réasúnaithe
COM(2018)147 Togra le haghaidh Treoir ón gComhairle lena Leagtar Síos Rialacha
a Bhaineann le Cánachas Corparáide ar Láithreacht Dhigiteach Shuntasach
agus
COM(2018)148 Togra le haghaidh TREOIR ón gCOMHAIRLE maidir leis an
gComhchóras Cánach Seirbhísí Digiteacha ar Ioncaim a Thig as Seirbhísí
Digiteacha Áirithe a Sholáthar
Bealtaine 2018
-------------------------------------------------------
HOUSES OF THE OIREACHTAS
JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM AND
TAOISEACH
Reasoned Opinion on
COM(2018)147 Proposal for a Council Directive Laying Down Rules Relating to the
Corporate Taxation of a Significant Digital Presence
and
COM(2018)148 Proposal for a COUNCIL DIRECTIVE on the Common System of a
Digital Services Tax on Revenues Resulting from the Provision of Certain Digital
Services
May 2018
32-FPERT-012
Europaudvalget 2018
KOM (2018) 0148 Bilag 4
Offentligt
2
Joint Committee on Finance, Public Expenditure and Reform, and
Taoiseach
1
TABLE OF CONTENTS
PAGE
1. INTRODUCTION 2
2. SCRUTINY BY THE JOINT COMMITTEE 3
3. OPINION OF THE JOINT COMMITTEE 3
4. RECOMMENDATION OF THE JOINT COMMITTEE 6
5. MEMBERS OF THE JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND
REFORM, AND TAOISEACH 7
6. TRANSCRIPTS OF JOINT COMMITTEE MEETINGS 8
7. ORDERS OF REFERENCE 9
Joint Committee on Finance, Public Expenditure and Reform, and
Taoiseach
2
JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM AND TAOISEACH
Report under Dáil Standing Order 114 and Seanad Standing Order 116 on
COM(2018)147 and COM(2018)148 - Proposal for a Council Directive laying
down rules relating to the corporate taxation of a significant digital presence
and a Proposal for a Council Directive on the common system of a digital
services tax on revenues resulting from the provision of certain digital services.
1. Introduction
1.1 The principle of subsidiarity is defined in Article 5(3) of the Treaty on European Union
(TEU) as follows:
“Under the principle of subsidiarity, in areas which do not fall within its exclusive
competence, the Union shall act only if and insofar as the objectives of the
proposed action cannot be sufficiently achieved by the Member States, either at
central level or at regional and local level, but can rather, by reason of the scale
or effects of the proposed action, be better achieved at Union level”.
Article 5(3) also gives specific responsibility to national parliaments to ensure that EU
institutions apply the principle in accordance with Protocol 2 on the application of the
principles of subsidiarity and proportionality.
1.2 The test established by Article 5(3) TEU is, in effect, a “comparative efficiency”
exercise, involving a “necessity” test and a “greater benefits” test:
(i) Necessity - Is action by the EU necessary to achieve the objective of the
proposal? Can the objective of the proposal only be achieved, or achieved
to a sufficient extent, by EU action?
(ii) Greater Benefits - Would the objective be better achieved at EU level – i.e.
would EU action provide greater benefits than action at Member States
level?
1.3 To assist national parliaments in their evaluation of subsidiarity compliance, Article 5
of Protocol 2 provides explicitly that
“Any draft legislative act should contain a detailed statement making it possible
to appraise compliance with the principles of subsidiarity and proportionality. This
statement should contain some assessment of the proposal's financial impact
and, in the case of a directive, of its implications for the rules to be put in place
by Member States…”
1.4 Therefore, any new draft legislative act,
 must be supported by a sufficiently ‘detailed statement’ to allow a judgment
to be made by national parliaments on its compliance with the principle of
subsidiarity
 must clearly satisfy both the necessity and greater benefit tests
 must, under the principle of conferral set down in Article 5(2) of the TEU,
show that the Union is acting ‘only within the limits of the competences
conferred upon it by the Member States in the Treaties to attain the
objectives set out therein.’
Joint Committee on Finance, Public Expenditure and Reform, and
Taoiseach
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2. Scrutiny by the Joint Committee on Finance, Public Expenditure and Reform,
and Taoiseach
The Joint Committee (hereafter referred to as the “Committee”) has scrutinised these
proposals at three meetings on 26 April 2018, 1 May 2018 and 3 May 2018.
2.1 At its meeting of 1 May the Committee agreed that COM(2018)147 and
COM(2018)148 warranted further scrutiny and agreed to invite Irish MEPS,
officials from the Department of Finance and the Office of the Revenue
Commissioners to a meeting of the Committee to further discuss and to be
briefed on the technical aspects of the proposals. The Committee also agreed to
invite stakeholders/experts to discuss the wider implications of the proposals on
Ireland’s corporate tax structure.
2.2 Respective witnesses attended Committee meetings on 26 April 2018, 1 May
2018 and 3 May 2018. Following the Committee’s consideration of these matters,
the Committee agreed a reasoned opinion on the proposal at its meeting on 10
May.
2.3 The Joint Committee wishes to thank the witnesses for their assistance in relation
to the Committee’s work on these significant proposals.
3. Opinion of the Joint Committee
The Committee has had specific regard to the Treaty provisions and is of the opinion that
these proposals do not comply with the principle of subsidiarity. The reasons are set out
in the following paragraphs:-
3.1 The digitalisation of the global economy is having a transformative impact and
this impact presents challenges in terms of the applicability of the existing global
tax framework.
3.2 The existing global taxation system requires modification to respond to challenges
posed by digitalisation of the economy.
3.3 The established corporate tax framework, which taxes profits based on where
value has been created has not evolved to match the digitalisation of global
business and that the current Permanent Establishment (PE) Test does not reflect
modern business models.
3.4 The Committee is cognisant of the long-standing role played by the OECD/G20 in
developing and publishing the Base Erosion and Profit Shifting [BEPS] initiative.
Furthermore, the Committee is aware that taxation of the digital economy
features prominently in the BEPS Action Plan published in 2015 and that on-going
reviews on the challenges posed by digitalisation are currently being examined
with a view to a global solution being identified and reported in 2020.
Joint Committee on Finance, Public Expenditure and Reform, and
Taoiseach
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3.5 However, the Committee notes that there is no single definition of what
constitutes the Digital Economy. The Committee refers to publications by both
the OECD and the IMF reflecting that there are no agreed definitions of the digital
sector, products or transactions. In that regard, the Committee notes the
difficulties involved in calculating the size of the digital economy and in ring-
fencing elements of the digital economy for taxation purposes.
3.6 The Committee is of the view that the EU proposals introduce a narrow solution
as regards the concept of digital permanent establishment for taxing profits from
the sale of digital services, when other goods and services can use many of the
same mechanisms to avoid tax and are not addressed by these proposals.
3.7 The Committee reiterates that taxation and the rights of Member States to
impose, administer and repeal taxes is a sovereign right enshrined in law and is
therefore a national competence.
3.8 The Committee is of the opinion that the implications of the proposals fall
generally within the area of tax policy and thus impinges on a national
competency.
3.9 The Committee notes that taxation of the Digital Economy will also have
implications as regards the allocation of profits and that the proposals do not
explicitly state the method of allocation. If the allocation method is based on an
apportionment formula similar to that proposed in the CCCTB proposal or
attributed to end users of online digital services, this approach will naturally
favour and advantage large member states with large population and customer
bases. Therefore, it is the view of the Committee, that in the absence of any
impact assessments for individual member states, it is probable that these
proposals will impact disproportionately and negatively on the finances of smaller
members states.
3.10 The Committee has particular concerns regarding the EU acting unilaterally in
proceeding to introduce proposals designed to tax the digital economy when
existing international reviews are as yet not completed. Specifically, the
Committee notes the on-going studies and analysis of the OECD Task Force on
the challenges arising from the digitalisation of the global economy. The
Committee deems that it is necessary that all parties work together towards a
durable and global based consensus approach and in this vein supports the fact
that all 113 countries in the OECD BEPS inclusive framework have agreed that a
global rules based system based on international agreement is critical.
Joint Committee on Finance, Public Expenditure and Reform, and
Taoiseach
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3.11 The Committee notes that concerns have been raised at an international level
with regard to unilateral action by the EU in this domain. The narrow application
of the interim tax focusing primarily on technological companies gives the
perception that these companies are being treated exceptionally. It could be
construed that the proposals are arbitrary and discriminatory in practice in
pinpointing a particular sector of the wider economy. This perception has the
potential to escalate global trade tensions that may impact adversely on the EU
economy.
3.12 The Committee has reservations that the EU acting unilaterally could increase the
administrative burden and costs and may lead to a position whereby Member
States will have to embark on renegotiating tax treaties with Third Countries.
3.13 The Committee is of the view that the Digital Services Tax (DST) or turnover tax
is a blunt and crude instrument – to be derived from gross revenue that takes no
account of whether a business is profitable or loss making.
3.14 The Digital Services Tax as designed poses a significant threat to the viability of
start-ups and small business enterprises (SMEs) and is contrary to the stated EU
objective of job creation and wider economic growth.
3.15 The Committee has concerns as to the legality of the mandatory application of a
3% annual levy where Member States have no discretion in either increasing or
decreasing the tax rate. The set rate of 3% determined at a centralised level
raises issues concerning the legality of the proposal and whether it is in violation
of the principle of tax sovereignty.
3.16 The Commission estimates that €5billion in additional revenue will accrue on an
annual basis from the imposition of the Digital Services Tax. However, the
underlying data used in calculating this figure is not published. The Committee
considers it difficult to verify or conduct a robust assessment of the impact of the
proposal in the absence of such data.
3.17 The Committee expresses reservations that the proposal introducing a Digital
Services Tax does not contain or provides for a “sunset clause”. The Committee
notes that temporary levies or taxes can become permanent and that Member
States can become dependent on such revenue streams. The Committee deems
this problematic in view of the fact that such a mechanism has the potential to
create economic uncertainty for businesses.
3.18 The Digital Services tax has the potential to lead to some form of Double
Taxation. As the DST is not creditable against corporation tax paid, the scope for
some form of double taxation occurring is increased.
3.19 The Committee recognises the ongoing work and studies in relation to what
constitutes “added value” in the Digital Economy and Digital Services realm. The
Committee notes that the concept of “added value” requires careful analysis and
that no specific definition or recognised label/standard currently exists. In the
Joint Committee on Finance, Public Expenditure and Reform, and
Taoiseach
6
absence of clarification and a recognised standard, the Committee deems it
premature to devise a taxing model in the absence of defined concept criteria.
3.20 The Committee notes that the timeframes for both the publication of the
OECD/G20 Report on the Taxation challenges posed by the Digital Economy and
the implementation/enactment of the EU proposals coincide. The Committee has
concerns about the development of two divergent and incompatible taxation
models which have the potential to engender a two-tier system adding greater
uncertainty and fragmentation.
3.21 In that regard, the Committee deems that the OECD should be fully supported in
completing its analysis and review of taxation and the digital economy with the
ultimate objective of global consensus and alignment achieved on the
implementation of a new global taxation framework that has international
acceptance. The Committee believes this approach offers the best way forward in
formulating a global response to the global issue that is taxation of the digital
economy.
3.22 The Committee is satisfied that the above points, taken together, clearly
demonstrate that the proposed Directives breach the principle of subsidiarity.
4. Recommendation of the Joint Committee
The Committee agreed this Report under Dáil Standing Order 114 and Seanad Standing
Order 116 on 10 May 2018.
The Committee, pursuant to Standing Orders recommends the reasoned opinion
contained in Section 3 above for agreement by Dáil and Seanad Éireann.
_____________________
John McGuinness T.D,
Chairman,
10 May 2018
Joint Committee on Finance, Public Expenditure and Reform, and
Taoiseach
7
Appendix 1
Membership of the Joint Committee on Finance, Public
Expenditure and Reform and Taoiseach
Deputies: John McGuinness TD (FF) (Chairman)
Peter Burke TD (FG)
Joan Burton TD (Lab)
John Deasy TD (FG)
Pearse Doherty TD (SF)
Michael McGrath TD (FF)
Paul Murphy TD (IND)
Senators: Gerry Horkan (FF) (Vice-Chairman)
Paddy Burke (FG)
Rose Conway-Walsh (SF)
Kieran O’Donnell (FG)
Joint Committee on Finance, Public Expenditure and Reform, and
Taoiseach
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Appendix 2
Transcripts of Joint Committee Meetings
The Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach met with
Irish MEPs, officials from the Department of Finance and the Office of the Revenue
Commissioners and representatives of the Irish Tax Institute and Irish Christian Aid in
public session to discuss the proposals COMs(2018)147 and 148. Details of the meetings
with a link to the meeting transcripts, is set out below.
26 April 2018
1 May 2018
3 May 2018
Joint Committee on Finance, Public Expenditure and Reform, and
Taoiseach
9
Appendix 3
Orders of Reference
a. Functions of the Committee – derived from Standing Orders [DSO 84A; SSO 70A]
(1) The Select Committee shall consider and report to the Dáil on—
(a) such aspects of the expenditure, administration and policy of a
Government Department or Departments and associated public
bodies as the Committee may select, and
(b) European Union matters within the remit of the relevant Department or
Departments.
(2) The Select Committee appointed pursuant to this Standing Order may be
joined with a Select Committee appointed by Seanad Éireann for the
purposes of the functions set out in this Standing Order, other than at
paragraph (3), and to report thereon to both Houses of the Oireachtas.
(3) Without prejudice to the generality of paragraph (1), the Select Committee
appointed pursuant to this Standing Order shall consider, in respect of the
relevant Department or Departments, such—
(a) Bills,
(b) proposals contained in any motion, including any motion within the
meaning of Standing Order 187,
(c) Estimates for Public Services, and
(d) other matters
as shall be referred to the Select Committee by the Dáil, and
(e) Annual Output Statements including performance, efficiency and
effectiveness in the use of public monies, and
(f) such Value for Money and Policy Reviews as the Select Committee may
select.
(4) The Joint Committee may consider the following matters in respect of the
relevant Department or Departments and associated public bodies:
Joint Committee on Finance, Public Expenditure and Reform, and
Taoiseach
10
(a) matters of policy and governance for which the Minister is officially
responsible,
(b) public affairs administered by the Department,
(c) policy issues arising from Value for Money and Policy Reviews
conducted or commissioned by the Department,
(d) Government policy and governance in respect of bodies under the
aegis of the Department,
(e) policy and governance issues concerning bodies which are partly or
wholly funded by the State or which are established or appointed by a
member of the Government or the Oireachtas,
(f) the general scheme or draft heads of any Bill,
(g) any post-enactment report laid before either House or both Houses by
a member of the Government or Minister of State on any Bill enacted
by the Houses of the Oireachtas,
(h) statutory instruments, including those laid or laid in draft before either
House or both Houses and those made under the European
Communities Acts 1972 to 2009,
(i) strategy statements laid before either or both Houses of the Oireachtas
pursuant to the Public Service Management Act 1997,
(j) annual reports or annual reports and accounts, required by law, and
laid before either or both Houses of the Oireachtas, of the
Department or bodies referred to in subparagraphs (d) and (e) and
the overall performance and operational results, statements of
strategy and corporate plans of such bodies, and
(k) such other matters as may be referred to it by the Dáil from time to
time.
(5) Without prejudice to the generality of paragraph (1), the Joint Committee
appointed pursuant to this Standing Order shall consider, in respect of the
relevant Department or Departments—
(a) EU draft legislative acts standing referred to the Select Committee
under Standing Order 114, including the compliance of such acts with
the principle of subsidiarity,
Joint Committee on Finance, Public Expenditure and Reform, and
Taoiseach
11
(b) other proposals for EU legislation and related policy issues, including
programmes and guidelines prepared by the European Commission
as a basis of possible legislative action,
(c) non-legislative documents published by any EU institution in relation to
EU policy matters, and
(d) matters listed for consideration on the agenda for meetings of the
relevant EU Council of Ministers and the outcome of such meetings.
(6) Where a Select Committee appointed pursuant to this Standing Order has
been joined with a Select Committee appointed by Seanad Éireann, the
Chairman of the Dáil Select Committee shall also be the Chairman of the
Joint Committee.
(7) The following may attend meetings of the Select or Joint Committee
appointed pursuant to this Standing Order, for the purposes of the functions
set out in paragraph (5) and may take part in proceedings without having a
right to vote or to move motions and amendments:
(a) Members of the European Parliament elected from constituencies in
Ireland, including Northern Ireland,
(b) Members of the Irish delegation to the Parliamentary Assembly of the
Council of Europe, and
(c) at the invitation of the Committee, other Members of the European
Parliament.
(8) A Select Committee appointed pursuant to this Standing Order may, in
respect of any Ombudsman charged with oversight of public services within
the policy remit of the relevant Department or Departments, consider—
(a) such motions relating to the appointment of an Ombudsman as may
be referred to the Committee, and
(b) such Ombudsman reports laid before either or both Houses of the
Oireachtas as the Committee may select.
b. Scope and Context of Activities of Committees (as derived from Standing
Orders) [DSO 84; SSO 70]
(1) The Joint Committee may only consider such matters, engage in such
Joint Committee on Finance, Public Expenditure and Reform, and
Taoiseach
12
activities, exercise such powers and discharge such functions as are
specifically authorised under its orders of reference and under Standing
Orders; and
(2) Such matters, activities, powers and functions shall be relevant to, and
shall arise only in the context of, the preparation of a report to the Dáil
and/or Seanad.
(3) The Joint Committee shall not consider any matter which is being
considered, or of which notice has been given of a proposal to consider,
by the Committee of Public Accounts pursuant to Standing Order 186
and/or the Comptroller and Auditor General (Amendment) Act 1993; and
(4) any matter which is being considered, or of which notice has been given
of a proposal to consider, by the Joint Committee on Public Petitions in
the exercise of its functions under Standing Orders [DSO 111A and SSO
104A].
(5) The Joint Committee shall refrain from inquiring into in public session or
publishing confidential information regarding any matter if so requested,
for stated reasons given in writing, by—
(a) a member of the Government or a Minister of State, or
(b) the principal office-holder of a body under the aegis of a
Department or which is partly or wholly funded by the State or
established or appointed by a member of the Government or by
the Oireachtas:
Provided that the Chairman may appeal any such request made to the
Ceann Comhairle / Cathaoirleach whose decision shall be final.
(6) It shall be an instruction to all Select Committees to which Bills are
referred that they shall ensure that not more than two Select
Committees shall meet to consider a Bill on any given day, unless the
Dáil, after due notice given by the Chairman of the Select Committee,
waives this instruction on motion made by the Taoiseach pursuant to
Dáil Standing Order 28. The Chairmen of Select Committees shall have
responsibility for compliance with this instruction.


REASONED OPINION
OF THE
HOUSE OF REPRESENTATIVES OF MALTA
Proposal for a Council Directive laying down rules
relating to the corporate taxation of a significant digital presence COM (2018) 147
and
Proposal for a Council Directive on the common system of a digital services tax on
revenues resulting from the provision of certain digital services COM (2018) 148
1. Aim of the Commission Proposals
This proposal package aims at addressing the issues raised by the digital economy by setting
out a comprehensive solution within the existing Member States' corporate tax systems. It
provides a common system for taxing digital activities in the EU which properly considers the
features of the digital economy. This proposal lays down rules for establishing a taxable nexus
for digital businesses operating across border in case of a non-physical commercial presence.
New indicators for such a significant digital presence are required to establish and protect
Member States’ taxing rights in relation to the new digitalised business models. This proposal
sets out principles for attributing profits to a digital business which rely on intangible assets.
2. Commission justification on compliance with the principle of subsidiarity
According to the first proposal’s legal basis (Article 115 of the Treaty on the Functioning of
the European Union), the Council acting unanimously and according to a special legislative
procedure, and after consulting the European Parliament and the European Economic and
Social Committee, shall issue directives for the approximation of such laws, regulations or
administrative provisions of the Member States directly affecting the establishment or the
functioning of the internal market. Despite the Commission’s aims to eradicate distortions in
the functioning of the internal market, the Commission also aims to rein in unilateral measures
that have been, or are threatened to be, adopted by several Member States to address the same
issues, which could create confusion and fragmentation with the European Single Market. It is
already clear that not all Member States are aligned with the proposed measures. Given that
European legislation relating to tax can generally be passed only with unanimous consent, the
nature and timing of the successful enactment of this package remains uncertain.
The Commission’s proposal rests on the principle that profits should be taxed where value is
created, but with a significant twist: While the current rules largely allocate to a country, the
right to tax the profits of a business on the basis of the physical presence that the business
maintains within its borders — which must be significant enough to amount to a “permanent
establishment” — the proposal would extend this test to include, with respect to the provision
of digital services, the existence of a “significant digital presence.” In substance, this means
that where a non-resident business provides “digital services” through a “digital interface” to
users “located” in a European Member State, and this business maintains a “significant digital
Europaudvalget 2018
KOM (2018) 0148 Bilag 4
Offentligt
presence” in that Member State, the profits derived through this significant digital presence will
be taxable in the Member State in question.
The second proposal’s legal basis falls under Article 113 of the TFEU. This provision enables
the Council, acting unanimously in accordance with special legislative procedure and after
consulting the European Parliament and the EESC to adopt provisions for the harmonisation of
Member States’ legislation concerning other forms of indirect taxation to the extent that such
harmonisation is necessary to ensure the establishment and functioning of the internal market
and to avoid distortion of competition.
3. Evaluation on the compliance of the principle of subsidiarity
The House of Representatives of Malta notes that the principles of subsidiarity and
proportionality become relevant where the Union and the Member States share competence in
a sector in terms of the Treaty on European Union and the Treaty on the Functioning of the
European Union.
The House of Representatives of Malta retains that the proposed system of a Digital Services
Tax infringes the principle of subsidiarity for the following reasons:
1. The aim of the Proposal can be better achieved through long-term national solutions
coordinated at an international level rather than through the proposed European short-
term measures. It is believed that the suggested interim measures impinge on established
fundamental tax concepts and create more issues than solutions.
a. The legal basis of the Proposal, which seeks to approximate laws in relation to
corporate taxation is questionable given that the treatment proposed will
distinguish between entities established in EU Member States and entities
established in third countries which do not have a double taxation agreement
with an EU Member State, and entities established in third countries which
have double taxation treaties with an EU Member State in force. The
unavoidable result of such approach is that of a difference in treatment afforded
between Member States and third countries and Member States themselves
given that Member States have different treaty networks with third countries.
b. The Proposal impinges on fundamental tax concepts, such as that of the
permanent establishment, which is a key concept in the OECD Model Tax
Convention on Income and on Capital, which remains the most authoritative
source used by countries when negotiating conventions with each other.
2. The House of Representatives holds that the research and reports provided by the OECD
are merely guidelines provided for an international approach, however, the Commission
in this proposal goes beyond its scope and has thus decided to take action. This however
would imply impinging on the Member States’ tax competence and prove that there are
no strong arguments in terms of subsidiarity.
The Impact Assessment fails to meet the requirements of the principle of subsidiarity
for the following reasons:
a. The Commission declares that the Proposal aims to steer discussions at
international level for long-term reform. Whilst one could understand the
political motivations of such an approach, it is believed that such aspects ought
to be subservient to evidence based policy action. Moreover, the Commission
states that this policy framework will be mirroring the changes in the OECD
Model Tax Convention at international level, thereby rendering the current
proposed measures redundant.
b. Illustrations of possible unilateral action by Member States as a justification for
taking legislative action appear pertinent for the Digital Service Tax initiative,
but seem to have little relevance for this initiative. This is more so when
considering that the changes to the permanent establishment provisions are
clearly part of the international tax framework and require international uptake
for their effectiveness, and the fact that OECD Base erosion and profit shifting
(BEPS) Inclusive Framework already aims towards a consensus based solution
by 2020.
c. The BEPS arguments are not constant throughout the Impact Assessment and
although used to justify the need for a Directive, it is also recognised that
changes to the permanent establishment provision (and profit attribution rules)
is a fundamental change to the existing international rules which go beyond
anti-BEPS measures. In this regard, whilst the baseline scenario of the Impact
Assessment assumes Anti-Tax Avoidance Directive’s transposition, the
proposed text hardly elaborates why the application of these rules (within the
EU via ATADs, but also within third countries which are still coming on
stream) would not be pertinent developments to monitor before proposing this
Union action. It is pertinent to note that as highlighted in the OECD’s interim
report, there is already “preliminary evidence that implementation of the BEPS
package more generally is having an impact”.
d. It disregards any consideration on the consequential impacts that the extended
permanent establishment would have on other distributive rules typically found
within Member States’ double taxation treaties.
e. The approach taken within the Proposal does not take cognisance of the needs
of smaller markets.
The Maltese House of Representatives recognises that there is a common interest in maintaining
a coherent yet relevant set of international tax rules in view of the digitalisation of the economy,
and it is ready to engage in the discussions which will ensue on the Commission proposals.
However, the Maltese House of Representatives has a clear preference to go for solutions at the
international level which are globally applicable. For this reason, the House of Representatives
supports working towards a consensus-based solution in the OECD BEPS Inclusive
Framework.
Furthermore, given the global aspect of the digital economy, it is important to avoid duplication
of work with the OECD and solutions in this area should ideally be found on a broader scale
and if solutions are found, these should serve as input into broader OECD discussions. It must
be stressed that unilateral EU measures may damage EU companies, thus it must be kept in
mind that a risk of damaging competitiveness of EU companies may also be present.
4. Recommendation
For the reasons outlined above, the House of Representatives of Malta holds that less
intrusive choices can lead to the achievement of the objectives behind the common system
of a mechanism, both in the short term as well as in the long term, without interfering
with the principles of subsidiarity and proportionality. The House of Representatives thus
believes that the:
 Proposal for a Council Directive laying down rules relating to the corporate taxation
of a significant digital presence (COM (2018)147); and the
 Proposal for a Council Directive on the common system of a digital services tax on
revenues resulting from the provision of certain digital services (COM (2018) 148),
do not satisfy the subsidiarity principle.
The House of Representatives of Malta has decided to object to the Proposals and to
deliver this reasoned opinion in terms of the procedure defined in Article 6 of Protocol
No. 2 concerning the Application of the Principles of Subsidiarity and Proportionality,
annexed to the Treaty on the European Union and to the Treaty on the Functioning of
the European Union.
Anġlu Farrugia
Speaker
House of Representatives of Malta
May 2018