Spectator on facebook

Spectator on facebook

Challenges of taxing digital platforms

The European Union is working on new legislation addressing taxation in a sharing economy.

(Source: AP/TASR)

Digital platforms like Uber, Airbnb and booking.com have resulted in new challenges in taxation. This is because the so-far tax approach was based on physical presence, i.e. the business entity was physically present in the country where it did its business and it was subsequently taxed. This is not true anymore. As a consequence, digital platforms do not pay taxes in the countries in which they do business but shift their profits to lower-tax locations. So new models on how to tax these companies are being sought. While Slovakia has come up with its own solution, the European Commission has been already working on new legislation addressing taxation in a sharing economy.

“It is like having road traffic rules for bicycles while we already have flying cars in the streets,” said Ľubica Dumitrescu, tax expert at Deloitte in Slovakia, when describing the existing taxation scheme.

Rules for international taxation are obsolete and lead to base erosion and profit shifting (BEPS). This refers to corporate tax planning strategies artificially shifting profits from higher-tax locations to lower-tax locations and thus eroding the tax-base of the higher-tax locations.

Read also:Slovakia is pioneering the taxation of digital platforms

International organisations including the Organisation for Economic Co-operation and Development, G20 as well as the European Commission aim to adapt the current EU tax rules to the digital developments of the 21st century and the different ways of creating profits in the digital world.

The European Commission (EC), which sees that digitalisation provides benefits and opportunities, on March 21 proposed new rules for the taxation of digital activities and digital business models in the EU.

“The amount of profits currently going untaxed is unacceptable,” said Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue at the European Commission as cited in the press release. “We need to urgently bring our tax rules into the 21st century by putting in place a new comprehensive and future-proof solution.”

The EC arrived with two distinct legislative proposals. The first initiative aims to reform corporate tax rules so that profits are registered and taxed where businesses have significant interaction with users through digital channels.

The rest of this article is premium content at Spectator.sk
Subscribe now for full access

I already have subscription - Sign in

Subscription provides you with:
  • Immediate access to all locked articles (premium content) on Spectator.sk
  • Special weekly news summary + an audio recording with a weekly news summary to listen to at your convenience (received on a weekly basis directly to your e-mail)
  • PDF version of the latest issue of our newspaper, The Slovak Spectator, emailed directly to you
  • Access to all premium content on Sme.sk and Korzar.sk

The processing of personal data is subject to our Privacy Policy and the Cookie Policy. Before submitting your e-mail address, please make sure to acquaint yourself with these documents.

Top stories

Slovak healthcare needs thousands of medical workers

Slovak doctors, nurses and midwives are not hesitating in finding better work conditions abroad.

Illustrative Stock Photo

Study shows construction of Eastring gas pipeline is feasible

Construction of the interconnector may begin in 2022.

Variants of the possible route of Eastring

Spectacular Slovakia #3: Unexpected hiking (Enjoy Bratislava's greenery) Audio

In Slovakia, you can hike in the capital city. Listen to the latest episode of our travel podcast to find out more.

Foreigners: Top 10 events in Bratislava Video

Tips for the top 10 events in the capital between September 21 and September 30, plus regular services in different languages, training, temporary exhibitions and highlights of the year.

Kapitulská