Author: Paul Verhaeghe
- This business model relates to all companies that are mainly interested in the worldwide merchandising (1) of the users of their websites and the data collected from them (2). In order to improve collecting this data they offer their users free access to data or services (3).
Under Article 16 TFEU the protection of personal data is a part of the European Union law. Companies subject to European data protection compliance are most eligible to be included in this group.
For means of taxing business models the likes of Google, Facebook, Twitter, Skype or more in general all forms of free access (1) through digital interfaces (2) to digital information or communication (3) with a commercial intent for the provider (4), three steps seem logical to determine a realistic assumption of a profit tax base created by the worldwide commercialising of the number of users or their collected data obtained inside a Member State or the European Union :
a) determine the number of users in the European Union for a given period (or in the Member State) in the worldwide number of users of a commercial group that reports worldwide income to its shareholders that is substantially obtained from merchandising users and data collected from users,
b) the GPD per capita of the European Union (or the Member State) is multiplied with the number of users in the European Union (or the Member State), and so are the nationals GPD’s per capita of the worldwide users, and the compared result is represented as a percentage,
c) that percentage is multiplied with the reported worldwide cash flow and gives the gross profit tax base that is assumed to be allocated in the European Union (or the Member State).
- Such assumed gross profit tax base is clearly oversized for it does not take into account worldwide expenses and will lead to excessive taxation if not adjusted by ways of a profit margin.
This profit margin gives the assumed net profit tax base and is best fixed as a low profit margin.
For tax compliance burden purposes it would be preferable that the allocated worldwide income is determined on a European level as a whole. The European Commission could so levy European taxes on that worldwide income obtained from users located in the European Union. That own income for the Commission can be used in turn to address the impact of Brexit on the European budget or to reduce, to some extent, the rising contributions of Member States to the European budget for urgent challenges such as defence, border control or immigration.
- If these companies have no Permanent Establishment present by choice, a direct tax measure that seeks to create a virtual Permanent Establishment would violate the tax treaty rights of these companies.
In the third section of the article the question is examined if through non-tax requirements such as data protection, criminal investigation, fake news containment,.. a physical presence can be demanded from all companies that have such a business model. These requirements of presence may in turn give cause to a Permanent Establishment criterion.
