Europe proposes massive tech tax hike on Silicon Valley giants

Ivan Schwartz
March 22, 2018

The European Commission unveiled a new initiative Wednesday that aims to tax the revenues of tech companies like Google and Facebook, ramping up tension with the United States amid a broader standoff over trade. The commission estimates that up to 150 companies could be affected, around half of them from the US.

The Commission sees this a long-term solution, so it's also proposing an unorthodox interim tax that would apply to revenue, rather than profit generated inside the EU.

It also suggested the burden of complying with the tax and the affect that would have on trade "would be significant and have a negative impact on [the EU's] attractiveness for global functions".

The tax would be collected in countries where the users are located. At the recent G20 finance ministers meeting in Buenos Aires, US Treasury Secretary Steven Mnuchin issued a clear warning that Washington "firmly opposes" any new tax imposed on American digital companies.

The European Commission (EC) on Wednesday presented its proposal to slap multinational tech behemoths with a special levy, dubbed as "digital tax", that is expected to raise about €5 billion ($6.14 billion) a year.

"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, in a statement.

In this rule, a company would be eligible to be taxes if it had more than 100,000 users, and earns more than 7 million euros annually, or over 3,000 "business contracts for digital services" inside the country. For instance, if Facebook sells an ad created to reach users in Milan, the company would pay tax on that ad revenue in Italy. These activities include the sale of online advertising space, the supply of platforms connecting users and suppliers of services and goods (probably meaning companies such as Airbnb and Amazon), and the sale of data derived from user-provided information.

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Under EU law, firms like Google and Facebook can choose to book their income in any member state, prompting them to pick low-tax nations like Ireland, the Netherlands or Luxembourg.

The EC's tech tax move reflects both the increasingly vocal public anger in Europe aimed at low tax-paying online behemoths and the European authorities' push for more control over how the digital world operates.

The European Commission said it wants to introduce new taxes for large technology companies in Europe. While unanimity will be hard - Irish prime minster Leo Varadkar on Wednesday called the tax "ill judged" - some countries may introduce their own revenue taxes if the EU-wide initiative ultimately collapses.

The transatlantic blow has been championed by French President Emmanuel Macron and will be discussed over dinner at an European Union leaders summit on Thursday.

USA objections alone won't scuttle the EC proposals.

"Our proposal doesn't target any company or any country", he said. The proposed plan could add millions, if not hundreds of millions, to the taxes digital companies pay to the countries in which they do business, even if the companies do not have a physical presence in the country.

Other reports by GizPress

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