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Spotlight

Reverberations continued over the European Commission's (the Commission) recent and controversial digital taxation proposals. A senior Treasury official this week said the US does not believe that user data or user contributions to the content of an online platform is any different from other input sourced from unrelated third parties, and therefore should not be accorded any special treatment. The Treasury official was responding to the European digital proposals under which users are deemed to have a role in value creation; specifically, that value is often created from a combination of algorithms, user data, sales functions and knowledge. For example, the Commission claims a user contributes to value creation by sharing their preferences (e.g., liking a page) on a social media forum. This data later may be used and monetized for targeted advertising. The profits are not necessarily taxed in the country of the user (and viewer of the advertisement), but rather in the country in which the advertising algorithms have been developed, for example. This means that the user contribution to the profits is not taken into account when the company is taxed, says the Commission.

According to the Treasury official, digital platforms do not, in and of themselves, justify their being considered a permanent establishment of the platform provider. Moreover, the US official said this approach selectively targets US companies. Responding to the possibility of US retaliation if the European Union (EU) goes forward with its digital proposals, EU Tax Commissioner Pierre Moscovici told the European Parliament this week that the Commission's digital tax proposals are not anti-US or aimed at US multinational companies.

The Treasury official also was quoted as saying the Organisation for Economic Co-operation and Development's (OECD's) Forum on Harmful Tax Practices would soon be reviewing the new foreign derived intangible income (FDII) provision introduced in the Tax Cuts and Jobs Act. The official said the US is confident that the FDII measure is fully consistent with OECD standards and does not violate the minimum standard for preferential regimes as described in the Base Erosion and Profit Shifting (BEPS) project.

The tax press meanwhile is reporting that the EU will consider whether to put the US on its blacklist of tax haven countries, pending the outcome of the OECD Forum on Harmful Tax Practices review of certain US tax reform measures. According to the report, the EU Code of Conduct for Business Taxation group determines if a jurisdiction has a harmful preferential tax regime that can result in a country being added to the blacklist. The EU reportedly has also called on Member States to review whether certain US tax reform provisions violate bilateral tax treaties.

The IRS released two Foreign Account Tax Compliance Act (FATCA)-related publications this week. First, the IRS issued Publication 5189, "FATCA Reports International Compliance Management Model (ICMM) Notifications User Guide," which explains the meaning of each of the possible notifications sent from the IRS ICMM system and the steps that should be taken to address those issues. The IRS also released Publication 5216, "International Compliance Management Model (ICMM) Notification XML Schema User Guide," providing a general description of the notification schemas for FATCA reports.