Huge corporations such as Facebook, Google and Amazon could face bigger tax bills under new European Union proposals on digital companies.
The European commission has called for large technology companies to pay a 3% tax to a country if they make money from user data or show digital advertising there, even if they’re technically based elsewhere.
This would also mean that companies like Airbnb and Uber would also be liable to pay more tax as they make use of user data everywhere they operate.
This could shake up current transatlantic tensions and change the way big companies do business abroad. Currently, companies are taxed on their profits and will therefore choose countries where the percentage of Corporation Tax is lower, for example Ireland.
This digital tax is likely to raise tensions between Trump’s White House and Brussels. Steven Mnuchin, US Treasury secretary said that taxes on internet companies were “not fair”.
The European commission has addressed concerns that this proposed law would be specifically target US companies.
“This is not an anti-American tax, this is not an anti-Gafa tax, this is a digital tax,” said Pierre Moscovici, the European commissioner for tax. He said that 150 firms would be affected including those from Europe, Asia as well as America.
The rise of digital companies has made it more difficult to collect tax and create laws which are fair to everyone. The commission would like a reform of EU corporate tax rules that will adapt to the changed market and apply to digital companies.
They estimate that digital businesses pay an effective average tax rate of only 9.5% compared with the 23.2% that traditional, bricks and mortar firms are expected to pay.
The commission said they believe the tax will generate €5 billion for European treasuries every year, with the sum likely to rise. These rules would only apply to companies with global revenues of €750 million and €50 million in the EU.
However, for these rules to go ahead, they must be unanimously agreed by EU member states. In the meantime terms of the proposed laws may change.
If the UK agrees to the 3% tax by the end of the year, we may have to apply it during the Brexit transition period, expected to end in 2021.
What do you think of the new digital tax? Do you agree the law should be changed to accommodate digital companies such as Facebook? Please share your thoughts.