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

Impacts of the options (II) Focus on compliance costs Impact on SMEs: • Medium entreprises might fall under scope • Mitigating factors • Increase in level-playing field Cost for setting up a new PE: • From 0,23% to 0,55% of turnover (Deloitte, CCCTB impact assessment) 44

Impacts of the options (III) Option 1              Option 2                   Option 3 Intra-EU - narrow      Intra-EU - wide scope:   Intra-EU - wide scope: Adjustments to Directive on new permanent       scope + the CCCTB rules      establishment and profit    recommend allocation principles + application vis-à- adjustments to the CCCTB  vis third countries rules a) Integrity of the Single market            Weak                 Medium/Strong              Strong b) Sustainability of public finances        Medium                Medium/Strong        Medium/Strong c) Social fairness and level-playing         Weak                     Strong                 Strong field d) Fight against aggressive tax             Medium                    Medium           Medium/Strong planning e) Economic impacts                         neutral                      +                     + f) Admin burden and compliance                 -                         +                     + costs g) Coherence with EU and global             neutral                      +                    ++ tax agenda 45

Preferred comprehensive solution Where to tax?             What to tax? "Significant digital    Allocation of profits presence"             to a "digital PE" Functional analysis Revenues from supplying digital services exceeding        Builds on the arm's EUR 7 million        length principle – risks, assets, functions. or More than 100 000 users or Number of online business contracts exceeding 3 000 46

Interim solution 47

Objectives and baseline scenario Specific objectives: • proxy to deal with most extreme cases of mismatch between taxation location and value creation • Easy to admnistrate Baseline scenario: • Unilateral measures in place or planned 48

Unilateral measures 25 Third countries - cumulative 20 15 10 5 EU - cumulative 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Numbers of unilateral measures taken / planned in... … the EU     … third countries 49