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EU Council Legal Service Finds Legal Basis Issues with Proposed Digital Services Tax — Orbitax Tax News & Alerts

The EU Council Legal Service has reportedly found issues with the legal basis of the European Commission's proposed interim digital services tax, which is a 3% tax on revenue from certain digital services provided by companies with total annual worldwide revenues of EUR 750 million and EU revenues of EUR 50 million ({News-2018-03-22/P/2-previous coverage}). The tax was proposed based on article 113 of the Treaty on the Functioning of the European Union (TFEU), which concerns the harmonization of indirect taxes. However, the Legal Service has found that, as proposed, the digital services tax would not fall within the scope of article 113. Rather, the most appropriate legal basis would be article 115 of the TFEU, which concerns the adoption of directives that have a direct effect on the establishment or functioning of the EU internal market. Added to the existing disputes among EU Member States concerning the digital services tax, the findings of the Legal Service cast further doubt on the ability of the EU to come to a unanimous decision on the taxation of digital services by the end of the year as hoped by the Commission.