Tuesday, 22 January, 2019

Europe proposes strict new rules for tax-dodging tech firms

EU Commission to unveil plan for tax on tech company revenue Big internet companies facing 3% levy on turnover if Commission proposals approved
Ginger Lawrence | 22 March, 2018, 01:48

Though, they are a drastic shift in taxation methods that would stop tech companies from shifting their profits to so-called tax havens.

EU officials have said they want to prevent European companies being undercut by their neighbour across the channel after Brexit. It is one of a number of issues on which Brussels and Washington have clashed, from the broader regulation of the technology industry to a dispute over US steel and aluminum tariffs.

According to the Commission, the existing tax rules are now outdated with the emergence of the digital economy, which allows firms to operate across the globe without having a physical presence in many countries.

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.

"This current legal vacuum is creating a serious shortfall in the public revenue of our member states", France's Moscovici told a press conference in Brussels.

It has drawn up a double-layered plan to reform rules on taxing digital firms where they make sales - regardless of where their physical presence is.

EU Economics Affairs Commissioner Pierre Moscovici presented his proposals in Brussels aimed at recovering billions of dollars from mainly United States multinationals that shift earnings around Europe to pay lower tax rates.

The Commission said that top digital firms, whose average revenue growth of 14 percent far exceeded that of other multinationals, faced an effective tax rate of 9.5 percent, less than half the level of traditional companies.

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

The proposal needs to be approved by all 28 European member states before it becomes law, but the commission's proposals were immediately welcomed by Europe's five biggest economies, known as the G5, on Wednesday.

Minimum thresholds, however, will mean that only large tech businesses will be subject to the tax, and companies will be able to deduct the payments from their corporate tax contributions to avoid double taxation. But it's far from clear whether the proposal will survive inevitable pushback from the United States as well as several European Union countries, which remain uncomfortable with Brussels' expanded role on tax and fear starting a "tax war" with America.

Smaller countries also fear becoming less attractive to multinational firms.

It's still early days for the European Commission's digital tax plan proposal.

A European Commission proposal to impose a special tax on the sales of big digital companies in the European Union will harm the EU's attractiveness for U.S. investment, the American Chamber of Commerce Ireland has said. Facebook is one of several companies that have been in the crosshairs of regulators in Europe over the mishandling of personal data, tax avoidance and antitrust violations. It ordered Apple pay over $14 billion in back taxes. "Some of these companies are among the greatest contributors to US job creation and economic growth".

Milan Schreuer is a New York Times writer.