Why should the EU act? Legal basis • Article 115 of the TFEU • Article 113 of the TFEU Subsidiarity • Necessity of EU action • Added value of EU action 34

Objectives: what is to be achieved? 35

What were the policy options? 1. Options for a comprehensive solution 2. Options for an interim solution 36

Comprehensive solution 37

Baseline scenario (I) EU level • Implementation of the CCCTB • Implementation of ATAD • VAT package on e-commerce OECD level • BEPS actions (next slide) Member States • Planned/adopted unilateral measures 38

Baseline scenario (II – OECD level) •  International solution = preferred approach •  BEPS Action 7 •  BEPS Action Plan – Action 1 • No specific action •  OECD mandate for the TFDE: • Interim report – March 2018 • Presentation to G20 – April 2018 • Another interim report due in 2019 • Final report – 2020 •  Policy actions expected in the final OECD report… •  …But question marks on likelihood to reach a consensus at OECD 39

Options available (I) Fundamental reforms: • Destination-based tax • Unitary tax • Residence tax base with destination tax rate  All discarded at early stage Reforms within the current international tax framework (next slides) 40

Options available (II) Within current international tax framework: • Realigning profit allocation rules with value creation intra EU:  Narrow scope: amendment of CCCTB rules (option 1)  Wide scope: directive on digital PE (option 2) • Realigning profit allocation rules with value creation intra EU and vis-à-vis third countries (discarded) • Realigning profit allocation rules with value creation intra EU + recommendation vis-à-vis third countries (option 3) 41

Impacts of the options (I) Main limits: Option 1: Is limited to a small set of companies Option 2: Does not address the issue with third countries 42

Type and level of digital activities Material scope • No ring-fencing but holistic approach • Supply of physical goods less problematic / relatively more addressed through anti-abuse measures Digital activity thresholds Build on OECD (2015), Brauner and Pistone (2017), Hongler and Pistone (2015) • Cater for different types of business models (alternative vs cumulative) • Ensure compliance cost for dealing with digital PE is covered • Ensure comparable treatment between Member States 43