European Union officials have confirmed their plans to tax tech companies like Google, Amazon, Apple and Facebook based on generated revenues instead of profits.
French Minister of Economy Bruno Le Maire announced that plans to implement this change are currently underway and should be made public within the next couple of weeks.
As reported by TechCrunch, in an effort to curtail tax avoidance in Europe, Le Maire said tech giants who pay little-to-no tax in the region “will look at the overall revenue of tech giants in each country and tax them based on that figure.”
Based on this plan, Le Maire expects these multinational companies to be taxed anywhere between 2 to 6 percent of their revenue with final amounts being on the lower side of this range.
A draft proposal developed by the European Commission a month ago calls for a 1 to 5 percent tax on a firm’s “aggregated gross revenues,” with the levy applying to the final customer’s location and not that of the company.
Additionally, this tax, writes Selva Ozelli for CoinTelegraph, will not include “electronically supplied media, streaming, online gaming, IT solutions, cloud computing services, and “fintech” activities.”
Le Maire believes this plan is “a starting point,” as he “prefer[s] a text that will be implemented very quickly rather than endless negotiations” and then working on improving it a later date.
“The heads of these companies know themselves that this system can’t continue,” Le Maire concluded.
According to Shaun Williams writing for WCCF Tech, two major conclusions can be drawn from this push by the European Union to tax revenue.
First, Williams writes, “An apt reader would be correct to point out that high volume, low margin companies will see a lot of risk to how they operate; and on the other side of that same coin, the benefits that a low volume, high margin company might see with this type of tax code.”
Second, he says, since “the tax effectively would be placed at the location of the customer rather than the location of company entity itself… unless Amazon or Google wants to send millions of paying customers on a cruise to Bermuda they will end up finally paying their fair share of taxes to governments in Europe.”
Reactions to Proposed Revenue-Based Tax Vary Worldwide
Italy, Germany, Spain and France are at the forefront of this effort to tax tech giants based on revenue, while smaller EU nations like Ireland and Luxembourg oppose this move as it would hinder their business model.
PwC Ireland’s Joe Tynan admitted that this proposed tax plan is “a significant threat to Ireland’s corporation tax” considering the fact that Google, Twitter, Facebook, Airbnb, and Uber, among others, employ hundreds in the country.
Tech giants, many of whom are already involved in contentious cases with the European Union over their tax payments, will most likely fight back as they claim their financial arrangements do not infringe upon any law.
The US, in particular, might also retaliate as a result of this new revenue-based tax proposal.
Dan Niedle, a partner at Clifford Chance in the US, told Politico that many in the US suspect this move by the EU boils down to “protectionism.”
“Europe has largely failed to create successful large digital businesses. European traditional business are being out-competed, and this could be viewed as an attempt to stop that,” Niedle said, adding that “whether that is fair or not, U.S. retaliation is a real possibility.”
Current corporate tax rates in Europe range from 9 percent in Hungary to above 30 percent in economic powerhouses like France and Germany.
Do you think this change will ultimately go through? To what cost?
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