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EU is about to hit big US IT with a big tax

by on16 March 2018

Tailored for their unique brand of avoidance

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

The tax, if backed by EU states and lawmakers, would only apply to large firms with annual worldwide revenues above 750 million euros ($924 million) and annual “taxable” revenues above 50 million euro in the EU. The threshold for EU revenues has been raised from 10 million euro initially foreseen to exempt smaller companies and emerging start-ups from the tax.

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.

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 popular social media such as Facebook.

The tax would also be levied on online platforms offering “intermediation services”, a concept under which the Commission includes gig economy firms such as Airbnb and Uber. Digital marketplaces, 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 stricken by a tax on turnover, whereas they are mostly exempt from taxes on profits.

Some US firms, however, could offset the higher tax in the EU with lower tax payments to US authorities that would be required under a new US levy on overseas profits foreseen in President Donald Trump’s recent tax overhaul.

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 levy.

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.

For instance, revenues resulting from the supply of digital advertising should be allocated to countries in proportion to the number of times an advertisement has been displayed on a users’ device there, the proposal says.

The plan resembles a French proposal on an equalisation tax that was supported by several prominent EU states. However, it is likely to face opposition from small countries that fear to become less attractive to multinational firms.


Last modified on 16 March 2018
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