The European Commission has unveiled its new plan aimed at taxing companies where they actually generate business rather than where they are headquartered.
The European Commissioner for Financial Affairs, Taxation, and Customs Pierre Moscovici pleaded in Brussels for a new sales tax for digital companies such as Facebook and Google, as according to the EU executive, the existing rules would have prevented digital companies operating in Europe from being adequately levied, Moscovici said in support of the reform.
Leaving aside small start-ups, the new tax targets firms with significant online revenues that only apply to certain revenue streams, such as the sale of user data, online advertising, as well as the goods and services of companies that have a large client base and a clear significant number of transactions in each of the Member States.
The proposal indicates that the Commission aims to tax companies with a turnover of at least €750 million worldwide and more than €50 million in Europe, with 3% on sales in the future. Four major US companies – Google, Amazon, Facebook, and Apple – have been targeted after an extensive discussion that led to a September 2017 Summit promise by the European Commission that action will be taken against companies that relocate their profits abroad and pay no taxes within the bloc.
According to estimates by the European Commission, digital firms currently pay on average a corporate taxes of around 9%, while traditional companies pay – on the EU average – around 20%. Digital companies are often based in locations with low tax burdens, though their clients are located across the continent.
“The digital economy is a major opportunity for Europe, and Europe is a huge source of revenue for digital firms. But this win-win situation raises legal and fiscal concerns,” said Moscovici.
“Our pre-Internet rules do not allow our Member States to tax digital companies operating in Europe when they have little or no physical presence here. This represents an ever-bigger black hole for the bloc because the tax base is being eroded. That’s why we’re bringing forward a new legal standard as well an interim tax for digital activities.”