EU Unveils ‘Interim’ Online Tax Proposals For Tech Giants

The European Commission has today unveiled its proposals in an effort to get leading (and mostly American) technology companies to pay more tax.

The EU said its proposed plan is to “ensure that all companies pay fair tax in the EU” in the digital age and comes after years of complaints that American tech giants pay too little tax in certain European countries.

The first proposed plan is to get large tech companies with digital profits in Europe to pay tax on those profits if they exceed a threshold of 7m euros (£6.1m) in annual revenues in a Member State and have more than 100,000 users in a Member State in a taxable year.

Tax proposals

The second proposal is for three percent tax on revenues and would be collected by the Member States where the users are located.

This would only apply to companies with total annual worldwide revenues of 750m euros (£654m) and EU revenues of 50m euros (£44m).

If this tax is applied at a rate of 3 percent, it should bring in an estimated 5bn euros (£4.4bn) in revenues a year for Member States.

The good news for tech firms is the proposed three percent is less than the 2 to 6 percent of turnover tax that had been mooted earlier this month by French economy minister Bruno Le Maire.

The new tax proposal comes after the EU and national governments in Europe have faced criticism for continuing to allow multinational tech firms to make use of legal loopholes to pay low levels of tax by declaring their profits in smaller countries such as Luxembourg or Ireland that have lower tax rates.

The new initiative could allow member states to tax profits that are generated in their territory, even if a company does not have a physical presence there.

“The recent boom in digital businesses, such as social media companies, collaborative platforms and online content providers, has made a great contribution to economic growth in the EU,” said the Commission. “But current tax rules were not designed to cater for those companies that are global, virtual or have little or no physical presence.”

The EU pointed out that nine of the world’s top 20 companies by market capitalisation are now digital, compared to 1 in 20 ten years ago.

The EU described its solutions as an ‘interim’ tax measure, and is designed as a short-term measure before the EU finds a more comprehensive way to tax profits based on where tech firms do business.

“Digitalisation brings countless benefits and opportunities,” said Valdis Dombrovskis, VP for the Euro and Social Dialogue. “But it also requires adjustments to our traditional rules and systems. We would prefer rules agreed at the global level, including at the OECD. But the amount of profits currently going untaxed is unacceptable. We need to urgently bring our tax rules into the 21st century by putting in place a new comprehensive and future-proof solution.”

“The digital economy is a major opportunity for Europe and Europe is a huge source of revenues for digital firms,” said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs.

“But this win-win situation raises legal and fiscal concerns,” he said. “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. 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 for digital activities.”

The next step will be submitted these proposals to the Council for adoption and to the European Parliament for consultation.

However, the plan is likely to face significant opposition from countries such as Ireland and Luxembourg, who fear the proposed tax would undermine their ability to attract multinationals to base themselves in their countries.

Tech taxes

The tax arrangements of tech giants such as Amazon, Google, Facebook, Apple and others was slammed by a leading official at the Organisation for Economic Co-operation and Development (OECD) in 2015.

The man charged with reforming global tax rules said at the time that technology companies were pushing “the boundaries of what is legal,” and they should stop using tax havens to shelter their profits.

British MPs have also criticised tech companies’ tax arrangements as “immoral”.

As a result of public pressure Google struck a deal with HMRC in 2015 to pay £130 million in taxes dating back 10 years. The company revealed in 2013 it had paid only £11.6m in corporation tax the previous year.

Tech companies have defended their tax structures, saying they abide by tax laws as they’re currently written.

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