Today, the EU Commission has formally confirmed its intention to set out a proposal for an EU directive addressing taxation of digital profits by Spring 2018.

The reason is clearly stated in the latest Commission’s press release:

The tax rules in place today were designed for the traditional economy…as a result, the effective tax rate of digital companies in the EU is estimated to be half that of traditional companies – and often much less.

The Commission believes the current project for a Common Consolidated Corporate Tax Base (CCCTB) to offer a good framework for taxing all large digital businesses in the future: “as this proposal is currently being discussed by Member States, digital taxation could easily be included in the scope of the final agreed rules”.

Yet, not earlier than one week ago, ten EU countries – among which France, Germany and Italy – released a joint statement, where their Finance Ministers unequivocally said that long-term measures, such as the CCCTB, need to be “complemented”. Express reference was made to an “equalization tax” on the turnover generated in Europe by digital companies.

A turnover tax, such as the levy envisaged by the ten EU countries, falls among the type of fiscal measures that the Commission has already defined as “quick fixes”. The main problem with any temporary solutions is that if these taxes and fees are applied in substitution or on top of corporate income taxes, they may eventually lead to double or multiple taxation, as the Estonian Presidency has recently argued.

The EU Commission seems to favor an organic tax reform starting from the current international tax rules.  A fair standpoint: there is need for certainty and stability of tax rules, not short-term measures. Businesses need to know the tax consequences of their strategies, without an ever-changing fiscal framework.

However, in spite of the solution eventually adopted, there is an important “but”: who will really pay for the increased tax burden on large digital multinationals?

The proposed reform is clearly targeting large digital players such as Amazon, Apple, E-bay, Facebook, Google and others, most of which have a predominant market share in their own sector. If the digital players affected by a new tax reform decide to raise their fees following the increased tax burden, the community of small-mid size EU e-commerce businesses may ultimately share the burden of a digital tax.

Will EU merchants stop buying Google Ads services because of an increase in the Google Ads fees? Doubtfully. Will EU merchants stop buying ad space on Facebook because of an increase in Facebook fees? It is unlikely. Will merchants selling on the Amazon marketplace stop to sell through this channel because of an increase in the Amazon fees? Not likely…