World’s leading tech firms face extra €5 billion pa tax bill to operate in the EU

The European Commission last week proposed rules to make digital companies pay more tax, with US tech giants such as Google, Facebook and Amazon set to bear the brunt, media outlets widely report.

Under the Commission’s plan, companies with significant digital revenues in Europe will pay a 3% tax on their turnover on various online services in the EU, bringing in an estimated €5 billion each year. The tax would apply to large firms with annual worldwide revenue above €750 million and annual “taxable” EU revenues above €50 million. The EU’s five biggest economies – France, Germany, the UK, Italy and Spain – have already said they welcomed the Commission’s proposal for the new digital tax, El País reports. For Commissioner Moscovici, in an interview granted to Libération, there is a real risk that “anarchic tax competition among Member States will be intensified” if nothing is done. The Commission, he stressed, is proposing a “European solution offering a stable framework to states and businesses.” “We want to fill the legal void by adding digital activities into corporate taxation,” he further explained to De Tijd.

As stressed by Politiken, the Commission also stated that a long-term solution should be international. As reported by sources such as Naftemporiki and Večernji list, Vice-President Dombrovskis stated that the EU would indeed prefer rules agreed at the global level, but that the amount of profits currently going untaxed is unacceptable. He thereby replied to criticisms, from the economy, against the new tax. While the Commission is targeting US internet companies in particular, industry experts warn that it would also affect European companies with digital business models, ZDF reports. As reported by Frankfurter Allgemeine Zeitung, it would actually be a double taxation of profits, the President of the Association of German Chambers of Industry and Commerce (DIHK), Eric Schweitzer, said. Joachim Lang, Director General of the Federation of German Industries (BDI), also warned on ZDF against a double taxation of European digital companies.

The Commission’s proposal, Børsen reports, is also meeting resistance in Denmark; in Finland, Helsingin Sanomat discusses what is deemed a controversial proposal. Ireland, an Irish Times editorial comments, also has some legitimate concerns about the Commission’s tax proposals announced yesterday. It describes the Commission’s approach as “unusual and blunt,” but there is “no doubt” that a way needs to be found to get a fairer contribution in corporate tax from big multinational players in the digital sector. As noted by De Volkskrant, the plan is not ideal and Brussels itself speaks of an interim tax pending more structural measures to close the gap between the corporate taxation of conventional and digital companies. The European measures are aimed at solving the unfair situation that traditional companies pay more tax than traditional companies, and there is sympathy for the plan, but legal experts are sceptical. Professor Raymond Luja noted, in De Volkskrant, that the Commission only considers the turnover of digital companies without taking into account the possible high costs companies made to achieve this. A tech company like Uber has a high turnover, but does not make profit. A 3% tax rate over digital activities may seem uncomplicated, but it is difficult to determine how much money is made with collecting and trading user data in a specific member state, Mr Luja said.

What is more, the EU could hardly have chosen a more provocative moment to launch proposals for a new EU-wide tax on technology companies, given that Commissioner Malmström is currently in Washington trying to persuade US President Trump administration to exempt the EU from new American tariffs on steel and aluminium imports, Simon Nixon, the chief European commentator at The Wall Street Journal, claimed in The Times. In an interview with La Repubblica, Commissioner Moscovici stressed that the tax proposed by the Commission is not some kind of retaliation against the tariffs launched by US President Trump – something he reasserted in another interview with Rzeczpospolita. After the presentation of the proposal, Commissioner Moscovici also rejected, in front of the press, speculations that the proposal is to worsen the trade dispute between the US and the EU. “Our proposal does not target any company or country. We estimate that 120 to 150 companies will fall into the scope of the proposals – they are Europeans, Americans, Asians and others,” said Commissioner Moscovici, as quoted by the Daily Telegraph. He added that he actually spoke to Steven Mnuchin, the US treasury secretary, to reassure him of this point. “This new tax is entirely compatible with World Trade Organisation rules. There is no connection between this proposal and recent trade developments,” he stressed.