Ecofin study guide by Institute of Research & Training on European Affairs

EUropa.S. 2018 March

30th

â&#x20AC;&#x201C; April 2nd | University of Piraeus

Organized by: Institute of Research & Training on European Affairs

Study Guide EUropa.S. 2018 Council of the EU ECOFIN

Topic: Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits

ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

Table of Contents Greeting of the Board .................................................................................................... 3 Introduction to the Economic and Financial Affairs Council (ECOFIN) .......................... 4 Introduction to the topic ............................................................................................... 5 Historical/Analytical background of the Digital Single Market (DSM)........................... 6 The Digital Single Market strategy ........................................................................................ 7 Digital Single Market achievements ...................................................................................... 9

Introduction to the EU Tax Policy Strategy .................................................................. 13 Tax policy initiatives in EU level........................................................................................... 14 EU tax policy and Digital Single Market ............................................................................... 15 Critical challenges to the Tax Policy Strategy in the emergence of the digital era ............. 16

Conclusion .................................................................................................................... 17 Glossary ........................................................................................................................ 18 Questions Raised.......................................................................................................... 19 Bibliography ................................................................................................................. 20 Suggestions for further reading ................................................................................... 21

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ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

Greeting of the Board Dear Ministers, We would like to welcome you to EUropa.S. 2018 and specifically to the Economic and Financial Affairs Council (ECOFIN). EUropa.S. is the most prestigious European Institution Simulation in Greece, and we are confident that this year’s edition will be as successful as the previous EUropa.S. conferences. The document you are about to read is a product of thorough research from our part, thus we hope you will use it as a helpful study guide upon which you will base your further research. This year’s topic, as we believe all of you agree is a very intriguing one, as it consists of one practical and one theoretical pillar. Beginning with the latter, and given the ongoing conversation on a harmonized tax policy among Member States, during our committee sessions we will engage into fevered discussions on how to reach to the better co-ordination of tax policies in European level, with a view to achieving the removal of significant barriers, which pose a plethora of impediments to the reap of social benefits and the progress of European integration. As far as the practical part is concern, we will conduct fruitful debates in the direction of attaining the full implementation of the Digital Single Market (DSM), as part of the Juncker Plan 2020. Thereafter, the matter under discussion is more than demanding, consequently, we hope that you will all be well prepared full of break-through ideas and concrete proposals. To this view, we believe that the document at hand shall be a great starting point, which will assist you to understand both the Digital Single Market initiative, as well as the discussion on the adoption of common taxation policy between Member States. We would like to thank you for choosing ECOFIN and we hope to contribute as much as possible in order to make this experience a memorable one for all of you. Diplomatic courtesy and respect shall be the most important assets both during and prior the conference. On a last remark, should you have any queries, do not hesitate to contact us; we remain at your disposal at any time during the days leading up to the conference. Look forward to meeting you in March! Kind regards, The board of ECOFIN EUropa.S. 2018, March 30th – April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 3

ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

Introduction to the Economic and Financial Affairs Council (ECOFIN) The Council of the European Union- also known as EU Council, Council or Consilium, is one of the principal institutions of the European Union, as listed in the Treaty of the EU. Among its responsibilities, one may find the negotiation and the adoption of the European Union’s laws and budget, the coordination among member states in terms of fiscal, economic, educational, cultural and employment policies as well as the conduction of international agreements over the aforementioned areas. The headquarters of the Council are located in Brussels, where Ministers or State Secretaries of each one of the 28 Member States attend the Council’s meeting.1 As mentioned in article 16§ 6 of the Treaty of the EU2 “The Council shall meet in different configurations”, meaning that although legally the Council is a single entity, it is divided and meets in ten different “configurations” depending on the different functional area under discussion. The Council has a rotating presidency, which means that every 6 months the presidency rotates among the 28 Member States. During EUropa.S we will be simulating one of the ten above mentioned configurations of the Council of the European Union, the Economic and Financial Affairs Council (ECOFIN), which is comprised of the 28 economics and finance ministers of the European Union’s member states. At this point, it is essential to dissociate the ECOFIN from the Eurogroup. The latter is an informal body, under the auspices of which the minsters from the euro area member states discuss matters relating to their countries’ common responsibilities related to the euro. From January 2018, until June of the same year, Bulgaria holds the presidency of the Council and consequently the ECOFIN configuration.3

European Union. (2017). Council of the European Union - European Union - European Commission. [online] Available at: https://europa.eu/european-union/about-eu/institutions-bodies/council-eu_en [Accessed 1 Dec. 2017]. 2 Lisbon-treaty.org. (2017). Article 16. [online] Available at: http://www.lisbon-treaty.org/wcm/thelisbon-treaty/treaty-on-european-union-and-comments/title-3-provisions-on-the-institutions/87article-16.html [Accessed 1 Dec. 2017]. 3 Consilium.europa.eu. (2017). The presidency of the Council of the EU - Consilium. [online] Available at: http://www.consilium.europa.eu/en/council-eu/presidency-council-eu/# [Accessed 1 Dec. 2017]. EUropa.S. 2018, March 30th – April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 4

ECOFIN,â&#x20AC;&#x153;Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefitsâ&#x20AC;&#x153; Study Guide

Introduction to the topic The Digital Single Market (DSM) strategy opts to open up digital opportunities both for people and businesses in a market that consists of more than 500 million EU consumers. Its completion shall attribute 415 billion euros per year to the European economies, accompanied by new jobs and public service transformations. However, the impact of the digital technologies to the world does not leave the taxation systems intact. They aid in improving managerial services, reducing administrative burdens, enhancing and facilitating collaboration among tax authorities and addressing tax evasion. The fast paced and large scaled digitalization of the European economy is penetrating almost all areas of society. Approximately one third of the growth of the overall industrial profit in Europe owes to the uptake of digital technologies. For instance, in 2006 only one digital technology company was among the 20 most profitable companies in Europe, representing 7% of the market capitalization. In 2017, 9 technology companies, accounting for 54% of the total market capitalization are among the 20 most profitable.4 Taking into account the aforementioned, it is more than evident that the new initiative of DSM is in dire need of a stable and modern tax framework, in the direction of tackling market fragmentation and allowing all players to participate in the new market dynamics under balanced and fair circumstances.

http://eur-lex.europa.eu/legal-content/E 1

Eur-lex.europa.eu. (2017). EUR-Lex - 52017DC0547 - EN - EUR-Lex. [online] Available at: http://eurlex.europa.eu/legal-content/EN/TXT/?uri=COM:2017:547:FIN [Accessed 2 Dec. 2017]. EUropa.S. 2018, March 30th â&#x20AC;&#x201C; April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 5

Historical/Analytical background of the Digital Single Market (DSM) One of the basic priorities of the European Union since its foundation in 1957 has been the amelioration of the internal market5. This target remains important factor as technological innovations gather a lot of interest and our world has started to shape according to these tools. In 2017, the European Union has maintained its aforementioned orientation and aims at the assurance of its economic sustainability respecting the human rights and following necessary steps to surpass any unexpected obstacles that might have occurred in the past, one of them being the upcoming exit of the United Kingdom from the institution. Taking the above mentioned into consideration, the EU has emphasized on the construction of a long-term Digital Single Market, as its main purpose is the fulfillment of the Juncker Plan 20206. Thus, the main point of this process includes both the European integration and the reinforcement of the industries that act on its territory. Moreover, the proper function of the Internal Market along with DSM is of utmost importance in order to ensure a smooth transition. Hence, the European Commission has developed a new strategy and its focus areas are the following7: a. Calling for timely delivery and effective implementation, b. Ensuring a fair, open and secure digital environment, c. Managing the digital transformation of EU society and economy in a global level. The post financial crisis area contains various key points that need to be addressed so as to complete strategic plans which will assist on the establishment of a more efficient and consistent EU. Digital Single Market (DSM) should be examined and incorporated with cautiousness and hinder the return of the repercussions of the economic turbulence. Our goal is to highlight these efforts, define the problematics and show the necessity to include both common taxation policy and social benefits on this crucial and vital matter of the European Union.

European Parliament, (2017). Fact Sheets on the European Union [Online]. Available from: http://www.europarl.europa.eu/atyourservice/en/displayFtu.html?ftuId=FTU_1.1.1.html [Accessed: December 1st 2017] 6 European Commission, (2017). 10 Commission priorities for 2015-19 [Online]. Available from: https://ec.europa.eu/commission/priorities_en [Accessed: December 2nd, 2017] 7 European Commission, (2017). Shaping the Digital Single Market [Online]. Available from: https://ec.europa.eu/digital-single-market/en/policies/shaping-digital-single-market [Accessed: December 2nd 2017] EUropa.S. 2018, March 30th â&#x20AC;&#x201C; April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 6

The Digital Single Market strategy On 6 May 2015, the Digital Single Market strategy was adopted and contains 16 substantial initiatives which have been published by the Commission till January 2017. Right now, legal alterations are discussed by the co-legislator, the European Council and the Parliament. The DSM covers crucial aspects related to the European integration, such as the free movement of persons, the assurance of services and capital along with online access and commercial activities under conditions of fair competition. Secondly, it safeguards a high level of consumer and personal data protection, regardless of their nationality or place of residence. Thus, the European Commission has marked the completion of the Digital Single Market as one of its 10 political priorities and Vice-President Andrus Ansip is the head of the project team "A Connected Digital Single Market". As mentioned before, the DSM can provide important chances for new startups and allow already existing companies in a market of over 500 million citizens. What is more, citizens with the appropriate digital skills could also benefit from a comprehensive DSM as the opportunities would vary. Apart from that, this advanced market model would enhance the utilization of digital technologies that can improve citizens' access to cultural content and information and increase their chances to find desired working positions. It also can extend the use of an open government so as the European citizens will be able to obtain effective public oversight.

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Focus areas of the digital single market

The Digital Single Market Strategy consists of three basic pillars8. First of all, it emphasizes on providing better access for customers and companies to digital goods and services at the European territory. Secondly, the DSM aims at the creation of a fruitful environment that will entail right conditions and a high-quality field for digital networks and innovative services to be deployed. The third pillar of the Digital Single Market focuses on the maximization of the growth potential of the digital economy taking advantage of the multiple benefits of the digital technology. However, the European Commission during the discussion concerning the DSM expressed its commitment to fulfill its targets without radical steps, taking into consideration the Juncker Plan 2020. Consequently, the implementation of these perspectives requires both close collaboration among all member states and harmonized function of the related legislative organs of the institution. Thus, it is obvious that the Digital Single Market will not only promote the European integration, but also will assure the improvement of the functionality inside the framework of the EU and as a result European citizen are going to contribute upon this multidimensional matter.

Digital Single Market mid-term review

Since May 2015, the European Commission has managed to deliver all recommendations and policy initiatives announced in its Digital Single Market Strategy. Moreover, it has presented 35 proposals and 16 key initiatives which all aim 8

Cable Europe, (2017). Digital Single Market Strategy [Online]. Available from: http://www.cableeurope.eu/policy-areas/digital-single-market/l [Accessed: December 2nd 2017] EUropa.S. 2018, March 30th â&#x20AC;&#x201C; April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 8

at the removal of the existing online barriers and as a result allow citizens, businesses and governments to gain from the developing connected online digital market environment. The mid-term review is accompanied by the European Digital Progress Report (EDPR) which provides a thorough evaluation of how the EU member states are progressing in their digital evolution and describes possible steps to assist the amelioration of each national performance in digital environment.9 The Commission has also clarified three arising challenges that need special attention in order to form an open and secure digital environment: 1. Ensuring online platforms continue to bring benefit to our economy and society, 2. Developing the European Data Economy to its full potential, 3. protecting the European assets by tackling cybersecurity challenges. Additionally, it is mentioned that digitization remains a necessity for European firms as it creates a lot of different opportunities and above all brings on changes, such as the replacement and the transformation of jobs and the adaptation of the citizens regarding this issue. Several fact sheets depict how companies in various aspects of the Digital Single Market handle the transition and succeed thanks to EU digital policies and recommend certain assistance on fields being e-health, e-commerce etc. The mid-term review also contains a special Eurobarometer which examines the behaviors towards the influence of the automation on daily life.10 Approximately 28,000 EU citizens were interviewed in March 2017 and the results enlighten the progress of the Digital Single Market Strategy. Although 75% of Europeans believe that digitization has a positive effect on the economy, 44% of respondents that are currently employed claim that their job could be delivered by artificial intelligence.

Digital Single Market achievements In the past two years (2015-2016), major changes have occurred in order to create a long-term and substantial DSM. Therefore, legislative proposals for simple and effective cross-border contract rules seem to be utilized more often by consumers and firms and a wide-ranging review has been developed so as to decisively combat 9

European Commission, (2017). Europe's Digital Progress Report 2017 [Online]. Available from: https://ec.europa.eu/digital-single-market/en/news/europes-digital-progress-report-2017 [Accessed: December 4th 2017] 10 Euro Cities, (2017). Mid-term review of Digital Single Market Strategy is unveiled [Online]. Available from: http://www.eurocities.eu/eurocities/news/Mid-term-review-of-Digital-Single-Market-Strategyis-unveiled-WSPO-AM9MHZ [Accessed: December 3rd 2017] EUropa.S. 2018, March 30th â&#x20AC;&#x201C; April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 9

ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

unjustified geo-blocking11 Concerning the competition sector, the online trade of goods and the provision of services has been successful thanks to a reform of the copyright regime (Article 13 of the European Commission proposal on Directive Plan). Furthermore, extensive reports have gathered to evaluate the Regulation on Consumer Protection Cooperation (RCPC) and suggest appropriate measures in the area of parcel delivery.12 The main target remains the examination of means to reduce the administrative burden on businesses arising from VAT regimes. The creation of right conditions for digital networks and services is considered essential so as to accomplish their flourish. Firstly, the role of platforms in the market including illegal content on the Internet has been comprehensively analyzed and there have been discussions regarding the reform of the current telecommunication rules. Moreover, the review of the e-Privacy Directive and the Audiovisual Media Services Directive have shown sectors that require immediate alterations.13 Thus, the establishment of a Cybersecurity Contractual Public-Private Partnership has become momentous, because all confidential data should be strictly secured in order to assure the financial prosperity of European citizens and industries. As we mentioned before, it is pivotal to form these prerequisites so as to maximize the growth potential of the digital economy. Hence, a Priority ICT Standard Plan has been adopted and the European Interoperability Framework has been primarily extended on the field of public services. Additionally, initiatives on data ownership have been established such as the free flow of data (e.g. between cloud providers) and most importantly on a European Cloud. Apart from that, a new e-Government Action Plan has been generated including an initiative on mandatory interconnection of business registers.14 Future Perspectives on Digital Single Market

Recently, another substantial alteration has taken place as the mobile roaming 11

Consilium, (2017). Geo-blocking: unlocking e-commerce in the EU [Online]. Available from: https://www.consilium.europa.eu/en/policies/geo-blocking/# [Accessed: December 5h 2017] 12 European Parliament, (2017). Consumer Protection Cooperation Regulation [Online]. Available from: http://www.europarl.europa.eu/thinktank/en/document.html?reference=EPRS_ATA%282017%29608 802 [Accessed: December 3rd 2017] 13 European Commission, (2016). Full report on the public consultation on the ePrivacy Directive [Online]. Available from: https://ec.europa.eu/digital-single-market/en/news/full-report-publicconsultation-eprivacy-directive [Accessed: December 2nd 2017] 14 Halmos A., (2017). EU eGovernment Action Plan 2016-2020 - One year on... [European Commission]. Available from: https://ec.europa.eu/futurium/en/blog/eu-egovernment-action-plan2016-2020-one-year [Accessed: December 4th 2017] EUropa.S. 2018, March 30th – April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 10

ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

charges have finally been abolished in the European Union. This achievement will definitely be a valuable tool for all those citizens that travel periodically within the EU borders and as a result trade policy will be further solidified among Member States. In fact, roaming charges have been gradually decreased starting from 2006 and people pay only domestic charges.15 However, further targets have been arranged in order to complete the DSM and add more perspectives to the Internal Market. In the upcoming years (2018-2020) supplementary objectives are expected to be fulfilled. As of early 2018, citizens will be able to enjoy their online films, sports broadcasts, music and e-book subscriptions when travelling in the EU, a measure that will simplify Europeans' lives even more. On May 2018, a new single set of EU rules on data protection and privacy in electronic communications will be activated aiming at the elimination of cyber-attacks that exploit confidential financial information related to European firms and residents. The previous achievement will be accompanied with the first ever common cybersecurity law in the EU so as to raise the endurance of network and information systems in all Member States.

Finally, we reach the last stage of the completion of the Digital Single Market that tends to manage any paucities inside the EU framework. As of 2020, the member states of the European Union will for the first time coordinate their use of the highquality band 700 MHz that will improve the network efficiency so as to help

European Commission, (2017). Roaming Tariffs [Online]. Available from: https://ec.europa.eu/digital-single-market/en/roaming-tariffs [Accessed: December 4th 2017] EUropa.S. 2018, March 30th – April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 11

ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

Europeans comprehend advanced methods on e-commerce.16 If EU governments conduct the Commission e-government action plan, they could save up to €5 billion per year as of 2020, in which case they will be able to examine thoroughly possible improvements that European citizens believe that are essential in the following years.

Obstacles on Digital Single Market

The main objective for the Digital Single Market (DSM) was to assimilate the digital economy into European integration. Although various key changes have occurred as we previously mentioned, the EU's five-year DSM Strategy is accused for imposing too many restrictions on new technologies. Despite that, it is believed that the midterm review mentions that further accomplishments are possible in the next period. The most notable problem concerns the General Data Protection Regulation Mechanism (GDPR) as the extensive use of artificial intelligence (AI) would harm small and medium-sized enterprises (SMEs), because it would be extremely demanding to compete with multinational companies on this scale.17 Furthermore, the ban on roaming charges is recognized as lacking by European experts. It still requires bold reforms to be made by EU policymakers so as to fulfill the vision for a single wide market within the borders of the Union that will hold tremendous promise, a measure that would cut the inefficient duplication costs. The review highlights praiseworthy plans to eliminate cross-border regulatory differences and ban the utilization of geo-blocking. However, this would force rigid pricing for digital goods throughout the EU, meaning Bulgarian customers would be forced to pay the same price as Dutch customers for instance and as a result deteriorate competitive status among member states.18 Regarding the internet communications, it is mentioned that updates on telephone services seem necessary in order to avoid arising issues mainly due to the fact that they outlived their purpose and hinder the transition on a modernised financial environment. On a last remark, a modernized and comprehensive approach to the taxation field is 16

European Commission, (2017). How digital is your country? Europe improves but still needs to close digital gap [Online]. Available from: http://europa.eu/rapid/press-release_IP-17-347_en.htm [Accessed: December 5th 2017] 17 Wallace N., (2017). Clock ticking for EU to fix the digital single market [EU Observer]. Available from: https://euobserver.com/opinion/137956 [Accessed: December 5th 2017] 18 Stihler C.., (2015). Digital single market strategy lacks social dimension [The Parliament Magazine]. Available from: https://www.theparliamentmagazine.eu/articles/opinion/digital-single-marketstrategy-lacks-social-dimension [Accessed: December 1st 2017] EUropa.S. 2018, March 30th – April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 12

ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

a prerequisite to ensure fair competitiveness and EU growth through the Digital Single Market.

Introduction to the EU Tax Policy Strategy In May 23rd 2001, a Communication19 of the European Commission was published, delving deeply into the European approach towards the formation of a tax policy strategy. This document, under the title "Tax policy in the European Union - Priorities for the years ahead" suggests that there is no need for the harmonisation of the Member States’ tax systems. What is more, reiterating its commitment to the principles of subsidiarity and proportionality, it proposes that any action at EU level shall be taken in case individual Member States could not reach an effective solution, highlighting the fact that many tax problems arise from the lack of co-ordination of national policies.20 Under this scope, the main priority of the Communication was the elimination of all forms of tax impediments in terms of cross-border economic activity, targeting the concerns of businesses and individuals that operate within the Internal Market. Furthermore, the document promotes the fight against harmful tax competition 21, with a view to achieving better cooperation among tax administrations in combating fraud and assuring control. Under the auspices of the “Europe 2020” strategy for sustainable, smart and inclusive growth in the EU, in December 2010, the Communication Removing crossborder tax obstacles for EU citizens"22 was published. This document emphasizes on the most important taxation issues EU citizens face in cross-border transactions,

Eur-lex.europa.eu. (2017). EUR-Lex - 164839 - EN - EUR-Lex. [online] Available at: http://eurlex.europa.eu/procedure/EN/164839 [Accessed 7 Dec. 2017]. 20 Ec.europa.eu. (2017). [online] Available at: https://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/taxation/com%282 006%29823_en.pdf [Accessed 7 Dec. 2017]. 21 Taxation and customs union. (2017). Harmful tax competition - Taxation and customs union European Commission. [online] Available at: https://ec.europa.eu/taxation_customs/business/company-tax/harmful-tax-competition_en [Accessed 7 Dec. 2017]. 22 Ec.europa.eu. (2017). [online] Available at: https://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/taxation/gen_info/ tax_policy/com%282010%29769_en.pdf [Accessed 7 Dec. 2017]. EUropa.S. 2018, March 30th – April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 13

ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

including inter alia double taxation, discrimination, problems in claiming tax refunds, as well as trouble in acquiring information on foreign tax regimes.

Tax policy initiatives in EU level23 Significant progress has been achieved so far, specifically via the coordinated action towards tax obstacles and inefficiencies by the corporate tax, car tax areas, excise duties and VAT. Steps have also been taken against tax evasion via the Savings Tax Directive 24 and via Directives providing mutual assistance between tax administrations25. Research and Development (R&D) is another area of action considering its impact on job opportunities and economic growth. In its Communication “Towards a more effective use of tax incentives in favor of R&D”26, the Commission sets out a guideline of good practices and basic principles for the provision of such incentives, encouraging Member States to use them as means of coordination of national tax measures in the R&D field. In the Convention on the future of Europe27, the Commission expressed the belief that retaining unanimity for all decisions on taxation matters obstructs the better coordination in the EU level, proposing a move to qualified majority in specific tax areas. This proposal however was voted down by Member States. What is more, the Commission has started using non-binding approaches such as recommendations rather than legislative proposal, in the spirit of achieving progressive cooperation in the taxation field. Also, the option of closer collaboration of sub-groups or like minds Member States is also being examined. 23

Taxation and customs union. (2017). EU Tax Policy Strategy - Taxation and customs union European Commission. [online] Available at: https://ec.europa.eu/taxation_customs/generalinformation-taxation/eu-tax-policy-strategy_en [Accessed 2 Dec. 2017]. 24 Head, F. (2017). Savings taxation directive repealed - Consilium. [online] Consilium.europa.eu. Available at: http://www.consilium.europa.eu/en/press/press-releases/2015/11/10/savings-taxationdirective-repealed/ [Accessed 2 Dec. 2017]. 25 Taxation and customs union. (2017). Administrative Co-operation and Mutual assistance - Overview - Taxation and customs union - European Commission. [online] Available at: https://ec.europa.eu/taxation_customs/business/tax-cooperation-control/administrativecooperation-mutual-assistance-overview_en [Accessed 2 Dec. 2017]. 26 Ec.europa.eu. (2017). [online] Available at: https://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/com_tax_incentive s_en.pdf [Accessed 2 Dec. 2017]. 27 Eur-lex.europa.eu. (2017). EUR-Lex - 185410 - EN - EUR-Lex. [online] Available at: http://eurlex.europa.eu/procedure/EN/185410 [Accessed 2 Dec. 2017]. EUropa.S. 2018, March 30th – April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 14

ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

Furthermore, the Commission has disclosed regular economic and statistical analysis of taxation systems of Member States, with a view to providing information on taxation trends. Under this scope, the Commission has also taken a plethora of measures to promote good governance in the taxation field, referring inter alia to transparency, fair tax competition and exchange of information as summarized in its Communication28 of April 2009.

EU tax policy and Digital Single Market On September 21st 2017, the Communication on “'A Fair and Efficient Tax System in the European Union for the Digital Single Market” was adopted, highlighting the importance of fair taxation in the emerging market of digital economy. Under the scope of developing concrete solutions in the digital economy taxation field and influencing international discussions, the Commission agreed that important progress needs to be made by spring 2018. The aforementioned key-document suggests that the modern and comprehensive approach to the taxation of the Digital Single Market shall be driven by four objectives; fairness, competitiveness, integrity of the Single Market and sustainability. It emphasizes on the new international rules that arise from the emergence of digital economy, specifically the necessity to determine where the value of businesses is created and how this shall be attributed for tax purposes. About a year earlier, in October 2016, the Commission suggested the re-launch of the Common Consolidated Corporate Tax Base 29 (CCCTB), which shall be implemented be via a two-step process and will be obligatory for the largest groups in the EU. The CCTB is a single set of rules used to calculate companies’ taxable profits within the EU. With its implementation, cross-border companies will be obliged to comply with one, common EU system for calculating their taxable income, instead of abiding by national rulebooks. The re-lunch of this fair, competitive and modern corporate tax framework shall improve the Single Market for businesses,

Eur-lex.europa.eu. (2017). [online] Available at: http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0201:FIN:EN:PDF [Accessed 2 Dec. 2017]. 29 Taxation and customs union. (2017). Common Consolidated Corporate Tax Base (CCCTB) - Taxation and customs union European Commission. [online] Available at: https://ec.europa.eu/taxation_customs/business/company-tax/common-consolidated-corporate-taxbase-ccctb_en [Accessed 3 Dec. 2017]. EUropa.S. 2018, March 30th – April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 15

ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

combat tax avoidance, and support growth, jobs and investment in the EU, while the key changes in its re-launch are30: a) b) c) d)

It will be implemented in two steps It will be mandatory for large multinationals It will give strong incentives to R&D It will encourage stable financing

Critical challenges to the Tax Policy Strategy in the emergence of the digital era The implementation of the DSM accompanied with the adoption of the common tax policy strategy seem to be the ideal scenario, but this is far from easily achieved goal as there are several barriers that need to be removed. First of all, the most important challenge is to reform the outdated EU tax framework which is no longer fit for purpose, as business activities have become digitalized and globalized. Secondly, as mentioned before, in a digitalized world, it is often unclear what that value is, how to measure it, or even where it is created. In other words, where to tax and what to tax? What is more, given the globalization of the economy, national taxation systems are confronted with stronger competition. There are case where member states compete on taxation in order to attract economic activity or tax income. Also, tackling harmful tax competition, tax evasion and tax fraud have long been a thorny problem for the EU, which is about to be escalated in a digitalized environment. Furthermore, the evolution of the digitalization process has created new business models that affect economy as a whole, triggering the need to adapt and update tax systems. Some examples of new ways of conducting business that have dominated the digital market are the following:31 a) Online retailer model (ex. Amazon)

Ec.europa.eu. (2017). [online] Available at: https://ec.europa.eu/taxation_customs/sites/taxation/files/com_2016_685_en.pdf [Accessed 3 Dec. 2017]. 31 Ec.europa.eu. (2017). [online] Available at: https://ec.europa.eu/taxation_customs/sites/taxation/files/1_en_act_part1_v10_en.pdf [Accessed 5 Dec. 2017]. EUropa.S. 2018, March 30th – April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 16

ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

b) Social media model (ex. Facebook) c) Subscription model (ex. Netflix) d) Collaborative platform model (ex. Airbnb) On a last remark, the creation of a sustainable international momentum at political level is deemed more than necessary, as no consensus is being reached in international fora in terms of the modernization of tax systems, despite the increasing digitalization in the globalized world of today.32

Conclusion Overall, the increasingly digitalized world drives European economies to further interaction, in spite of their already intertwined nature. Acting as an accelerator and facilitator of the cross-border trade, services and transactions, digitalization can fundamentally change the lives of people and improve the efficiency of the firms within the borders of the EU. Under the scope of the Digital Single Market, the distribution of the social benefits that the constantly emerging digital economy can provide, shall be accomplished. However, it is necessary to welcome this new digital era with the required knowledge, tools and attitude. The up-to-date taxation system in EU level, shall coordinate the digitalization process ensuring a fair “slice of the pie” for all Member States. Hence, it is essential to take into deep consideration the need to safeguard social benefits as well in order to achieve a smooth transition to the new market status. Lastly, unity is of paramount importance so as to seize the upcoming digital opportunities, as it constitutes the key for the European primacy in digital economy in an international level, considering the absence of adequate global progress. Those remarks should be a compass for your research. This study guide focused on providing you with some incentives that could be useful for your research. By saying that, it means that this is the launch of your effort in understanding the potentials and the future of EU Digital Single Market. We hope that you have found our guide profitable for your upcoming research.

Europarl.europa.eu. (2017). [online] Available at: http://www.europarl.europa.eu/RegData/etudes/IDAN/2015/549001/EPRS_IDA(2015)549001_EN.pd f [Accessed 5 Dec. 2017]. EUropa.S. 2018, March 30th – April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 17

ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

Glossary Geo-blocking: “The process of limiting user access to the internet based on their physical location. It is typically implemented by telecommunications companies, websites and other content providers and intellectual proprietors, often for the sake of copyright restrictions.”33 Cyber-attack: “A deliberate exploitation of computer systems, technology-dependent enterprises and networks. Cyber-attacks use malicious code to alter computer code, logic or data, resulting in disruptive consequences that can compromise data and lead to cybercrimes, such as information and identity theft.”34 Cyber-security: “refers to preventative methods used to protect information from being stolen, compromised or attacked. It requires an understanding of potential information threats, such as viruses and other malicious code. Cybersecurity strategies include identity management, risk management and incident management.”35 Corporate tax: “It is a levy placed on the profit of a firm to raise taxes. After operating earnings is calculated by deducting expenses including the cost of goods sold (COGS) and depreciation from revenues, enacted tax rates are applied to generate a legal obligation the business owes the government. Rules surrounding corporate taxation vary greatly around the world and must be voted upon and approved by the government to be enacted.”36 Excise duties: “An indirect tax charged on the sale of a particular good. Indirect means the tax is not directly paid by an individual consumer; instead, the Internal Revenue Service (IRS) levies the tax on the producer or merchant, who passes the tax onto the consumer by including it in the product's price. It also refers to penalty taxation for ineligible transactions in retirement accounts.”37

Techopedia.com. (2017). What is Geoblocking? - Definition from Techopedia. [online] Available at: https://www.techopedia.com/definition/32362/geoblocking [Accessed 6 Dec. 2017]. 34 Techopedia.com. (2017). What is a Cyberattack? - Definition from Techopedia. [online] Available at: https://www.techopedia.com/definition/24748/cyberattack [Accessed 6 Dec. 2017]. 35 Techopedia.com. (2017). What is Cybersecurity? - Definition from Techopedia. [online] Available at: https://www.techopedia.com/definition/24747/cybersecurity [Accessed 6 Dec. 2017]. 36 Staff, I. (2017). Corporate Tax. [online] Investopedia. Available at: https://www.investopedia.com/terms/c/corporatetax.asp [Accessed 6 Dec. 2017]. 37 Staff, I. (2017). Excise Tax. [online] Investopedia. Available at: https://www.investopedia.com/terms/e/excisetax.asp [Accessed 6 Dec. 2017]. EUropa.S. 2018, March 30th – April 2nd, Athens, Greece europas.irtea@gmail.com | www.europas.irtea.gr Page 18

ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

Questions Raised I. II. III. IV.

V. VI. VII. VIII. IX. X. XI. XII. XIII.

Why is the Digital Single Market essential for the prosperity of the European economies and societies? What does the EU try to accomplish through the digitalization of its Internal Market? Are the three pillars of the DSM Strategy easily applicable? Why (not)? Regarding the Mid-Term Review what are the next steps so as to solve any new challenges about DSM that raised during the previous years (20152017)? Should the approach of the implementation of the DSM be altered so as the Member States be more confident about its future? Why (not)? How can we overcome the numerous concerns that have been expressed by SMEs owners? Is the adoption of the EU Tax Policy Strategy necessary? Why (not)? Is it possible for both the DSM and the EU Tax Policy Strategy to coexist? Are they parallel or divergent? To what extent are digital technologies able to ensure a fair and sustainable environment for the full implementation of DSM? How can the better coordination of Member States’ tax policies in an EU level contribute to the full implementation of the DSM? How important is the amelioration of the taxation system for the implementation of the DSM? How can the CCCTB be used for the implementation of the EU Tax Policy Strategy? Which shall be the role of the EU in the increasingly digitalized world and how can this be voiced via the adoption of comprehensive and innovative policies?

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Bibliography Cable Europe, (2017). Digital Single Market Strategy [Online]. Available from: http://www.cable-europe.eu/policy-areas/digital-single-market/l European Commission, (2017). 10 Commission priorities for 2015-19 [Online]. Available from: https://ec.europa.eu/commission/priorities_en European Commission, (2017). How digital is your country? Europe improves but still needs to close digital gap [Online]. Available from: http://europa.eu/rapid/pressrelease_IP-17-347_en.htm European Commission, (2017). Roaming Tariffs [Online]. Available from: https://ec.europa.eu/digital-single-market/en/roaming-tariffs European Commission, (2017). Shaping the Digital Single Market [Online]. Available from: https://ec.europa.eu/digital-single-market/en/policies/shaping-digital-singlemarket European Parliament, (2017). Fact Sheets on the European Union [Online]. Available from: http://www.europarl.europa.eu/atyourservice/en/displayFtu.html?ftuId=FTU_1.1.1. html Head, F. (2017). Savings taxation directive repealed - Consilium. [online] Consilium.europa.eu. Available at: http://www.consilium.europa.eu/en/press/pressreleases/2015/11/10/savings-taxation-directive-repealed/ Stihler C., (2015). Digital single market strategy lacks social dimension [The Parliament Magazine]. Available from: https://www.theparliamentmagazine.eu/articles/opinion/digital-single-marketstrategy-lacks-social-dimension Taxation and customs union. (2017). Common Consolidated Corporate Tax Base (CCCTB) - Taxation and customs union - European Commission. [online] Available at: https://ec.europa.eu/taxation_customs/business/company-tax/commonconsolidated-corporate-tax-base-ccctb_en Taxation and customs union. (2017). Harmful tax competition - Taxation and customs union European Commission. [online] Available at: https://ec.europa.eu/taxation_customs/business/company-tax/harmful-taxcompetition_en Wallace N., (2017). Clock ticking for EU to fix the digital single market [EU Observer]. Available from: https://euobserver.com/opinion/137956

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ECOFIN,“Establishing a system of resilience for the complete implementation of the Digital Single Market under the scope of common taxation policy and social benefits“ Study Guide

Suggestions for further reading Ab.gov.tr. (2017). Cite a Website - Cite This For Me. [online] Available at: https://www.ab.gov.tr/files/ardb/evt/1_avrupa_birligi/1_6_raporlar/1_3_diger/com mision_report_eu_tax_policy.pdf Businesseurope.eu. (2017). EU digital single market | BusinessEurope. [online] Available at: https://www.businesseurope.eu/policies/digital-economy/eu-digitalsingle-market Centre for European Policy Studies. (2017). Digital Single Market. [online] Available at: https://www.ceps.eu/topics/digital-single-market Digitalplan.gov.gr. (2017). [online] Available at: http://www.digitalplan.gov.gr/resource-api/dipla/contentObject/Digital-singlemarket-factsheet/content Europedia.moussis.eu. (2017). Europedia - The need for a common tax policy in the EU. [online] Available at: http://www.europedia.moussis.eu/books/Book_2/5/14/01/?all=1 Plucinska, J., Cerulus, L., Heath, R. and Heath, R. (2017). EU scrapes a pass on Digital Single Market. [online] POLITICO. Available at: https://www.politico.eu/article/digital-single-market-mid-term-report-card-tktktpercent/ Rankin, J. (2017). EU to find ways to make Google, Facebook and Amazon pay more tax. [online] the Guardian. Available at: https://www.theguardian.com/business/2017/sep/21/tech-firms-tax-eu-turnovergoogle-amazon-apple Taxjournal.com. (2017). Cite a Website - Cite This For Me. [online] Available at: https://www.taxjournal.com/articles/next-steps-corporate-tax-policy-euperspective-12102016

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