Updated International Tax Information | September 2018
In the rapidly evolving digital landscape, the taxation of digital multinational enterprises and cryptocurrencies has become a hot topic of debate. While the current rules were designed for a different era, the question of whether international tax rules need to change for digital businesses is a matter of ongoing discussion.
One of the main issues is that digital businesses can earn substantial revenues from a jurisdiction without creating a physical presence in that jurisdiction. This lack of geographical ties complicates the taxation process.
On a European level, the European Union has implemented measures to increase transparency and combat tax evasion. The DAC-8 directive and the Crypto-Asset Reporting Framework (CARF) mandate comprehensive tax reporting obligations on crypto. Crypto service providers across EU member states must collect detailed tax-relevant user data and report it to national tax authorities. However, the exact tax rates and liability remain national matters.
The tax treatment of cryptocurrencies varies significantly by country within the EU. For instance, Germany, considered one of the most robust yet investor-friendly regimes in Europe, classifies cryptocurrencies as private assets, not legal tender. Short-term profits are subject to income tax, while long-term gains are tax-free. Portugal, on the other hand, taxes crypto gains depending on the nature of the income, with profits from selling crypto held for under one year taxed at a flat 28% capital gains rate. Gains from holdings held over one year are generally tax-exempt, except for certain cases.
Some countries, including Germany and Portugal, offer significant tax exemptions or deferrals on crypto profits. However, specifics vary widely and are subject to ongoing regulatory developments.
In the absence of specific tax laws for cryptocurrencies in most jurisdictions, the taxation of digital multinational enterprises is a complex issue. The term "cryptocurrency" refers to a digital currency whose ownership is recorded as a chain of digital signatures on a blockchain, secured by cryptography. Cryptocurrencies are often considered to be digital or crypto assets rather than currency due to their speculative value that is not supported by underlying assets, economic activity, or a central authority.
Several jurisdictions are closely examining this issue, and the OECD is working on a long-term global solution. Job van der Pol, who assists clients on a wide range of tax-related disputes, recently joined a firm as a Partner and head of the Dutch tax team, bolstering the firm's international tax offering. With experience in handling high-profile tax cases arising from the European Commission's state aid investigations into tax rulings issued to multi-national companies, van der Pol's expertise will undoubtedly contribute to the ongoing discourse on taxing digital multinational enterprises and cryptocurrencies.
This article focuses on the taxation of digital multinational enterprises across seven major European jurisdictions, but does not provide details on the specific proposals made by various jurisdictions or the OECD. The specific tax treatment of cryptocurrencies in the seven major European jurisdictions is also not discussed in this article.
- The taxation of digital multinational enterprises, including cryptocurrency transactions, is a complex issue due to the lack of specific tax laws in most jurisdictions, and it has become a matter of ongoing discussion in the field of finance and business.
- In the European Union, while international tax rules for digital businesses are a topic of ongoing debate, the tax treatment of cryptocurrencies varies significantly by country, and comprehensive tax reporting obligations are mandated by directives like DAC-8 and the Crypto-Asset Reporting Framework (CARF).
