Digital activities are generating significant and ever-growing value. Digital companies have higher growth rates than the economy at large, and the largest among them have unprecedented user and consumer bases within the EU. For example, digital firms are showing annual growth of 14 % on average, while IT and telecoms are growing at 3 % and other multinationals at 0.2 %. Over 40 % of Europeans use Facebook. The scale of this ‘digital revolution’ may be illustrated by the fact that in 2006, only one digital technology company was among the top 20 global companies, accounting for a 7 % market share. Today, nine digital technology companies are in the top 20, accounting for a far more significant 54 % market share.
However, new business models created by digitalisation are putting pressure on the international tax system, which can often not catch up with the rapidly evolving sector. Essentially, digital services cross borders at the click of a mouse and are not grounded in a specific territory; corporate tax rules meanwhile are based precisely on a territorial link (place of establishment, explained in the next section). This, and incentives from governments that wanted to support the growth of this promising sector and attract such companies to their jurisdiction, leaves significant digital revenues uncaptured by the tax system. According to the European Commission, real tax rates paid by digital companies are much lower than those paid by traditional businesses.
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