European Union proposes strict new taxes on large technology companies

Mae Love
March 21, 2018

The EU has already been on tenterhooks amid fears of a global trade war since US President Donald Trump recently announced steep duties of 25 percent on steel and 10 percent on aluminium.

While Europe is trying to ignite its own tech startup economy, politicians here have grown increasingly furious at the influence of USA tech companies, triggering anti-trust investigations, proposals for revenue sharing around content, new limits on digital platforms, and investigations into tax evasion schemes.

If backed by European Union states and lawmakers, whose support is far from certain, the tax would apply to large firms with annual worldwide revenue above 750 million euros ($920.9 million) annual "taxable" European Union revenues above 50 million euros. Paris was a major proponent of a move to make digital giants pay more into national coffers. As a result of no physical presence, which is a key criteria for determining corporate tax liability, the profits are funneled to the company's home country or European headquarters, escaping tax in the country where customers are based.

"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, the Commission's tax czar, said after unveiling the proposals.

The most dramatic is an interim measure that would slap a 3% tax on revenue generated from digital activities including online advertising and the sale of user data.

On Friday the OECD, which is also working on ways to modernise the worldwide rules of corporate tax to take better account of digitalisation, said it does not recommend the introduction of interim measures by individual countries or groups of states. The Frenchman did not name any companies.

The plan also includes an interim measure that would allow countries to tax at a rate of 3 percent companies with total annual revenue of 750 million euros and revenues in Europe of 50 million euros.

Moscovici said this isn't the case, stressing that the proposal is created to apply to digital firms from all over the world.

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All of this activity generates data on the users that can be used to sell targeted advertising.

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. Officials added that the Commission opted to pursue this technique, as "there is legally no other way to do it".

The proposed new rules would also change how profits are allocated to member states.

On Wednesday, the Commission said that while many large tech companies have large growth rates, they only pay an effective tax rate of 9.5 percent - under half the rate paid by traditional companies. The tax would be applied even if companies do not have a physical presence in the country.

The tax proposal is bound to inflame transAtlantic trade tensions.

It is not immediately clear what steps the Trump administration would take in response to the digital tax.

But others - including Ireland, Luxembourg, and Cyprus - have voiced their preference for a global solution through the Organization for Economic Cooperation and Development.

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