Date
14 December 2018
The European Commission made the proposal following complaints by large EU states that  big tech firms are paying too little tax in the bloc by re-routing some of their profits to low-tax member states like Ireland and Luxembourg. Photo: Reuters
The European Commission made the proposal following complaints by large EU states that big tech firms are paying too little tax in the bloc by re-routing some of their profits to low-tax member states like Ireland and Luxembourg. Photo: Reuters

EU set to hit big US tech firms with 3 percent turnover tax

Large companies with significant digital revenues in the European Union such as Google and Facebook could face a 3 percent tax on their turnover under a draft proposal by the European Commission seen by Reuters.

The proposal, expected to be adopted next week and still subject to changes, updates an earlier draft which envisaged a tax rate of between 1 and 5 percent. 

The tax, if backed by EU states and lawmakers, would only apply to large firms with annual worldwide revenues above 750 million euros (US$924 million) and annual “taxable” revenues above 50 million euros in the EU, the news agency said.

The threshold for EU revenues has been raised from 10 million euros initially foreseen to exempt smaller companies and emerging startups from the tax.

Large US firms such as Uber, Airbnb and Amazon could also be hit by the new levy, which would apply across the 28 EU countries.

Big tech firms have been accused by large EU states of paying too little tax in the bloc by re-routing some of their profits to low-tax member states like Ireland and Luxembourg.

While an earlier version of the draft seen by Reuters mentioned several companies, the latest proposal contained no such references.

Services that will be taxed are digital advertising, which would capture both providers of users’ data like Google, and companies offering ad space on their websites, like Facebook and popular social media.

The tax would be levied also on online platforms offering “intermediation services”, a concept under which the Commission includes gig economy firms such as Airbnb and Uber. Digital market places, including Amazon, would also be within the scope of the levy.

Companies with thinner margins, like Amazon, which often operate at a loss, would be hit hard by a tax on turnover, whereas they are largely exempt from taxes on profits.

“Taxing revenues is the wrong approach to addressing some legitimate questions regarding cross-border tax policies,” Josh Kallmer, senior vice president at the US-based Information Technology Industry Council, which represents Google, Facebook, Amazon and other tech firms, told Reuters in an emailed statement.

He urged the EU to avoid unilateral moves and coordinate tax reforms at the international level.

Online media, streaming services like Netflix and other providers of digital content which do not rely on users to create value will be excluded from the scope of the EU levy.

The tax is presented in the draft as a temporary measure that would only be implemented if no deal is found on a more comprehensive, and possibly global, solution to tax the digital profits of companies in the countries where they are made, rather than where the firms are headquartered as is the case now.

The new tax would be levied by the countries where the digital users are located. If they live in different EU countries, the tax revenues will be shared “according to some allocation keys”, the draft document says.

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RC/CG

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