Led by France and Germany, the European Union is planning on targeting the revenues of US tech giants like Google, Amazon, Apple and Facebook in an effort to curtail tax avoidance and collect more taxes for the region.
According to The Financial Times, an “equalization tax,” or revenue tax, will be introduced next week to the EU finance ministers as a way of “[collecting] levies based on national turnover” instead of profits, as is the case now.
More specifically, the plan calls for a revenue tax of between 2 and 5 percent.
This initiative would call for a massive restructuring of European members’ tax systems and have a huge impact on the American multinational companies’ operations in the continent.
A statement released by the Finance Ministers of France, Germany, Italy and Spain announcing this proposal reads, “The amounts raised would aim to reflect some of what these companies should be paying in terms of corporate tax…We should no longer accept that these companies do business in Europe while paying minimal amounts of tax to our treasuries.”
Furthermore, as explained by The Financial Times, a French official highlighted the revenue tax’s benefits, claiming the levy has “the potential to deliver a tax take that was ‘orders of magnitude’ higher than what European governments had managed to collect so far.”
Jon Stone reporting from Brussels for The Independent believes a revenue tax “would likely be more difficult to avoid because it would be harder for companies to claim that their revenue came from elsewhere.”
Additionally, according to Iran’s Financial Tribune, consumers will bear the brunt of this tax “as said companies look to shore up their profits by defraying the increased tax burden onto their customers.”
The European Commission’s Tax and Customs Union spokesperson Vanessa Mock welcomed this move by the EU Finance Ministers: “What’s important now is that we move forward with a common approach that can protect the Single Market. It’s essential that we maintain a level playing field so that all companies pay their fair share and that profits are taxed where the value is created – as they should be. It’s on this basis that we proposed the CCCTB for the more traditional ‘bricks and mortar’ economy. Now let’s look ahead to having the same principle apply to digital multinationals.”
Plenty of Opposition to the EU’s Revenue Tax
Considering that for this revenue tax to become law there must be unanimous consensus between the EU’s 28 members, resistance is expected from low tax jurisdictions like Ireland, Luxembourg and Bulgaria.
Furthermore, PYMNTS.com believes US government officials will probably lobby against this particular proposal.
“This new proposal might receive some opposition from U.S. politicians, especially because of the amount of taxes in play. Google recorded $16.6 billion in revenue from the EMEA region during the first half of 2017, and could do over $35 billion in local sales this year. That means a 10 percent tax would amount to $3.5 billion in payments, while a 15 percent tax would require $5.25 billion in revenue tax,” PYMNTS writes.
Additionally, Tim Worstall, who writes for Forbes on financial issues, believes this proposed plan will fail given its many internal contradictions.
Worstall writes in Seeking Alpha, “As we all know, Amazon doesn't really, over the years, make a profit at all, reinvesting everything. Apple does very well indeed in profits. We do tax companies on their profits, not their turnover, for this very reason. One suggestion is that the tax would be set at 5% of turnover. Forget Amazon, that would wipe out Walmart's profits. And not make all that much of a dent in Apple's. It's simply not a good method of taxing in the first place, which is why we don't use it.”
This revenue tax is one of the measures proposed by BEPS Action 1, which, as reported by MNE Tax, should be implemented “to equalize the tax burden imposed on domestic and remote suppliers of the same goods and services.”
What do you think of Europe’s plan to levy a revenue tax on US tech giants? Let us know below!