The European Commission on March 21, 2018, unveiled two proposals on the taxation of digital activities in the EU: an interim 3% tax on certain revenue from digital activities; and a proposed reform of corporate tax rules so profits are registered and taxed where businesses have significant interaction with users through digital channels. A Commission press release said "profits made through lucrative activities, such as selling user-generated data and content, are not captured by today's tax rules."

The interim Digital Services Tax of 3% on gross annual revenues in the EU derived from specific digital services would be due in the member state(s) where the users involved are located and, the Commission said, would help avoid a patchwork of unilateral measures in member states. The press release said the system will apply only as an interim measure, "until the comprehensive reform has been implemented and has inbuilt mechanisms to alleviate the possibility of double taxation."

The proposed reform of corporate tax rules would enable member states to tax profits that are generated in their territory, even if a company does not have a physical presence there. The proposal for a directive on the matter sets criteria for a digital platform to be deemed to have a taxable "digital presence" or a virtual permanent establishment in a member state.

The Commission said the proposals will be submitted to the Council for adoption and to the European Parliament for consultation.

Taxation of digital activities has been a subject of significant global attention. A March 16 interim OECD report said there are different views among countries over to what extent digitalization should result in changes to international tax rules, and it did not make recommendations for interim measures. Treasury Secretary Steven Mnuchin and Senate Finance Chairman Orrin Hatch (R-UT) have expressed wariness over global efforts to impose a digital tax. The Commission and OECD attention on the issue comes amid concern among European nations over provisions of the Tax Cuts and Jobs Act and over the Administration's tariffs on steel and aluminum imports.

Materials related to the proposals are located here.

The proposal for a directive on a Digital Services Tax are available here.

The proposal for a directive on rules relating to corporate taxation of a significant digital presence may be found here.

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