What will the proposed new EU digital services tax do?

Holland FinTech member, Clifford Chance, has published a report assessing the legal impact of the proposed new EU digital services tax. The regulation, if passed into law, will affect unintended targets, the global law firm says. This is indeed a surprising breadth of application.

The law

The proposed pan-EU Digital Services Tax (DST) from the European Commission would apply a 3% tax on the gross revenues of a wide range of businesses. The intended target is primarily the large US digital businesses. However, more traditional businesses, including B2B and B2C models, could also be affected.

To target these digital monoliths, the DST applies to all internet advertising sales by large businesses. The tax has a broad application scope for “multilateral interfaces”. The breadth of this term means that it may also apply to many financial services, says Clifford Chance.

The digital economy means that many large digital companies can be active in countries where they do not have a physical precedes, escaping OECD international taxation, explains the report.

Impact on businesses outside intended targets of US digital corporates may affect financial services firms.

“Any business which sells online advertising will be within scope of the tax, if operated by a company/group which meets the financial thresholds.”

Financial intermediaries may be caught by the “multilateral interfaces” term if their service allows users to find and interaction with other users and facilities exchange of goods and services. Clifford Chance suggests the businesses most likely to be affected include:

  • Third country trading venues
  • Other trading venues such as cryptocurrency exchanges.
  • Peer-to-peer marketplaces of all kinds

Read the detailed report here.
By Grace Appleford, Research Analyst.

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