Author: Paul Verhaeghe
- This business model referrers to paying websites such as Netflix, or in general all access offered through digital interfaces (1) to digital information or communication (2) that requires payment (3). Various information sites such as newspapers websites, television-channels on web,.. have this business model.
Companies with this type of business model are taxed by classic means on the collected fees of the paying users in the Member State. But allocation tools of collecting income can hamper the profit tax base for the Member State where these paying users reside.
Paying users, like free users, also give cause to data mining and advertising all over the world. So the cash flow that is obtained from advertising, or data mining related to users, should be determined in the overall income.
Free business models could be tempted to avoid taxes by rather symbolic subscription fees. Some business models mix both free and paying users.
- The first allocation problem is the allocation of collecting the fees of the users.
Delocalization of collecting income can be addressed by recipient reports to the Member State of fee payments originating from that Member State. Such tax law obligation would also require a Permanent Establishment.
- The second allocation problem is the allocation of the digital service itself outside the Member State in order to reduce or annihilate the profit tax base on fees collected in the Member State. This problem relates to BEPS and CFC regulation for those providers who have a Permanent Establishment.
The companies that don’t have a Permanent Establishment may be subjected to the same non-fiscal requirements as the business model of free users and services (see hereinafter section III).
