Withholding Tax on Digital Transactions – Status Quo and Potential Alternative Courses of Action

Abstract

The providers of digital advertising services are criticised for being omnipresent worldwide, but to pay no significant corporate tax in many countries. In addition to supranational efforts at the OECD and EU level to solve the taxation problems of digital business models, some literature argues that providers of foreign digital advertising services are already subject to limited tax liability in Germany on the basis of existing tax laws. This paper therefore deals with the question of how German taxation rights for digital advertising services which are provided domestically by foreign corporations with the help of the internet can be ensured. To this end, the paper first examines whether German tax laws are capable of taxing cross-border digital advertising services. Subsequently, it will examine whether the draft directives discussed at EU level on the taxation of digital business models would be suitable for ensuring taxation in Germany. The study shows that the existing German tax laws cannot ensure the taxation of digital advertising services in most cases and that the introduction of the EU draft directives in their current form cannot be recommended.