Europe proposes strict new rules for tax-dodging tech firms

Carly Page
@CarlyPage_
21 March 2018

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THE EUROPEAN COMMISSION (EC) has unveiled its long-awaited plan to better tax technology companies.

As expected, the first part of the EC's two-step proposal is to whack tech firms with a three per cent turnover tax.

This measure will affect companies with global annual revenues of above €750m and taxable EU revenue above €50m, and will ensure the likes of Apple, Facebook and Google pay "their fair share", the EC said.

This interim tax will be based on revenues "created from certain digital activities which escape the current tax framework entirely", including online advertising, the supply of platforms connecting users and suppliers of services and goods (such as AirBnb and Uber), and the sale of data derived from user-provided information.

The EC's second solution, which it describes as its "preferred long-term solution," would tax digital profits where they are generated. The tax would be applied even if companies do not have a physical presence in the country.

According to the EC, top digital firms pay an average tax rate of just 9.5 per cent in the EU - far less than the 23.3 per cent paid by traditional companies.

Amazon, for example, paid a mere €16.5m on its 2016 European revenues of €21.6bn thanks to its heavily-criticised tax deal with Luxembourg.

"Our pre-Internet rules do not allow our Member States to tax digital companies operating in Europe when they have little or no physical presence here," Pierre Moscovici, Europe's commissioner for economic and financial affairs, taxation and customs said.

"This represents an ever-bigger black hole for Member States, because the tax base is being eroded. That's why we're bringing forward a new legal standard as well an interim tax."

The proposal still needs the backing of EU member states' governments and lawmakers, but if it did go into force, the EC claims that an estimated €5bn in revenues a year could be generated.

However, is likely to face opposition. Ireland, in particular, is likely to be a vocal opponent of the move, as its low tax rates have encouraged companies such as Facebook and to locate their international headquarters in the country. µ