Economy

European Union unveils plans to make big tech companies pay more taxes

European Union unveils plans to make big tech companies pay more taxes

Europe is moving aggressively to raise billions more in tax from big tech companies such as Google and Facebook.

The EU has been on tenterhooks amid fears of a global trade war since Trump this month suddenly announced steep duties of 25 percent on steel and 10 percent on aluminium. "Some of these companies are among the greatest contributors to USA job creation and economic growth". "But of course, the EU also continues its preparations to defend ourselves in case measures apply to the EU", European Commission sources told Agricensus. That would hurt jobs and growth in the European Union, the group added.

With this rare tax move, Brussels is upping the ante in its longstanding battles with Silicon Valley and Washington. 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.

According to the Commission, the existing tax rules are now outdated with the emergence of the digital economy, which allows firms to operate across the globe without having a physical presence in many countries.

But the measure is likely to pit low-tax European member states against countries like France and Germany, which have often complained about digital companies' aggressive cross-border tax planning and their not paying their fair share of taxes. All EU member states would have to approve the proposal before it could become law, and it's not entirely clear if countries like Luxembourg or Ireland, which benefit by serving as tax havens for U.S. companies, would want to see major tax reform that makes it harder for companies to hide their sales from taxation.

The tax would be applied on companies with an annual global revenue of more than €750-million and total taxable revenue of €50-million generated within the EU.

- It exceeds a threshold of €7m in annual revenues in a member state. The Frenchman did not name any companies.

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The OECD said over 110 countries have agreed to work on better coordination of tax laws for digital services. Officials added that the Commission opted to pursue this technique, as "there is legally no other way to do it".

The European Commission said it wants to introduce new taxes for large technology companies in Europe.

EU Trade Commissioner Cecilia Malmstrom has flown to Washington to petition the USA for an exemption from proposed steel and aluminium tariffs, although retaliatory taxes on imports including corn remain on the table, sources say. "They are largely based on physical presence and were not created to cope with business models driven primarily by intangible assets, data and knowledge", the commission argues.

"While they're digitalizing their products and processes, they're being affected by new tax burdens". That condition could prove challenging for the short-term tax on revenues.

The commission's tax, expected to be about 3 percent of sales, would affect revenue from digital advertising, paid subscriptions and the selling of personal data. "But current tax rules were not created to cater for those companies that are global, virtual or have little or no physical presence".

The industry reaction to the Commission proposals has been much more clear cut: Companies don't like them at all.

Its implementation will be fiercely fought by the USA commerce and treasury departments and the American companies - Facebook, Alphabet (owner of Google), Amazon and Twitter, among them - that dominate the digital commerce industry in Europe and around the world. "The EU proposal should feed the worldwide debate and help push our global partners into action, " it says.


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