Immediately ahead of a European Council that will focus to a large extent on advancing the digital economy, the European Commission decided, on 22 October, to set up a high-level expert group tasked with scrutinising taxation of the digital economy.

The expert group will have at most seven members, who have not been appointed yet (an ex-finance minister will possibly be named to chair the group). It is expected to get to work by the end of 2013 and to report to the Commission by mid-2014.

"Rapid progress" is needed, notes a Commission statement, given the pace at which the digital economy is developing, the stakes in terms of growth and jobs, and the problems resulting from this development for national tax systems "conceived in a pre-computer age" (as evidenced by the recent controversy over the practices of certain multinationals like Google, Apple, Amazon and Facebook).

Advances need to be based on two pillars, explained Taxation Commissioner Algirdas Semeta, who had already announced the launch of this initiative on 9 October. On the one hand, "taxation must not be an obstacle to all that is good about the digital revolution," in other words, this is not about giving it special attention in the context of the Commission's effort to reduce companies' exposure to double taxation and administrative overload. But on the other, the aim is to ensure that the digital sector plays fair and pays its share to states, which are forced by the crisis to replenish their coffers and consolidate their public finances.

"Currently, corporate tax avoidance and aggressive tax planning are particularly problematic in the digital economy," reads the EU executive's statement. It adds that taxes paid by the digital economy are "frequently" not in line with the profits this sector makes. Semeta described, on 9 October, as "unacceptable and untenable" the tax optimisation strategies developed by the businesses concerned, sometimes with the complicity of EU member states (see box).

It will not be easy to strike a balance between these two imperatives. "Everything remains possible," say sources at the Commission, where a close eye is being kept on national initiatives certain states may take - France in particular.

The 28 heads of state and government examined the situation at the European Council of 24-25 October.

"Ongoing work to tackle tax avoidance, tax base erosion and profit shifting is also important for the digital economy," read the draft conclusions they...

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