Revenue’s New ‘Digital Transaction’ Tax

Tax for the Memories

Taxation is always a hot topic of conversation, particularly in recent months as Revenue have begun to clamp down on issues of taxation from non-filing and late filing to fraud. With Brexit continuing to cast a shadow of uncertainty over us here in Ireland, our focus moves more into Europe. Recently two new legislative proposals have been put forward by the EU Commission which could possibly have unforeseen consequences for Ireland.

These proposals relate to digital tax and aim to create a turnover-based tax in an attempt to provide both a long and short term solution for the treatment of digital tax transactions. Essentially, the proposals will involve a 3% tax on gross revenues of certain digital transactions based on the location of target customers, meaning that the targeted consumer area will be issued with a tax payment, creating a sort of symbiotic tax relationship between the country of origin and the country of consumption. An apparent win-win situation as both countries receive something positive whether a tax payment or the revenue from the endeavour itself.

To begin with, this will only apply to larger companies with turnover in excess of €750m worldwide, but it is hoped that in the longer term, these plans can apply to a wider range of companies. It has been suggested that the proposals are in direct contrast to the normal tax principles in that it applies to where customers are located as opposed to where the work actively takes place, and also doesn’t take into account whether the company is making any profits as it is generally based on gross revenues. It has also been suggested that it will be far more difficult to quantify as rather than the standard procedures, it will involve converting customer data and satisfaction into actual facts and figures for taxation purposes. This has been suggested as being somewhat damaging for the Irish market which has a long history of exporting. It has also been suggested that this could be damaging for Ireland as it somewhat diminished the value of our 12.5% tax rate as this digital tax becomes a cost for Irish companies. A reduction in the appeal of our tax rate could result in Ireland becoming a less attractive prospect.

It has also been suggested that these proposals could have adverse effects on competition and be economically damaging should these short term proposals be in place for longer than expected as a longer term solution is formulated. These proposals could potentially penalise smaller countries whilst rewarding larger, this would of course be damaging to Ireland. Perhaps the longer term solution will factor in the value both of the country of origin and the country of consumption, but both this and any adverse or positive effects remain to be seen.