Revenue Tax on Tech Companies

EU’s Revenue Tax on Tech Companies Moves Forward

On Wednesday, the European Union proposed to tax technology companies such as Google, Amazon, Facebook and Apple (GAFA) based on their revenues stemming from a variety of services offered to customers in the region.

As reported by Reuters, according to the plan laid out by the European Union, “companies with significant digital revenues in Europe will pay a 3 percent tax on their turnover on various online services in the European Union, bringing in an estimated 5 billion euros ($6.1 billion).”

More specifically, as explained by the EU, this tax proposal “would apply to revenues created from certain digital activities which escape the current tax framework entirely.”

The revenues to be taxed include those: 1) “Created from selling online advertising space;” 2) “Created from digital intermediary activities which allow users to interact with other users and which can facilitate the sale of goods and services between them,” and; 3) “Created from the sale of data generated from user-provided information.”

This proposed tax would solely affect those technology “companies with total annual worldwide revenues of €750 million and EU revenues of €50 million” and is to “be collected by the Member States where the users are located.”

Taxation of Tech Companies’ Profits in Europe

Changes Also Coming to the Taxation of Tech Companies’ Profits in Europe

Furthermore, this tax package contains a component that “would enable Member States to tax profits that are generated in their territory, even if a company does not have a physical presence there.”

This levy would apply to companies that have a digital presence or “virtual permanent establishment” in the territory as long as it falls under one of the following three categories: 1) “It exceeds a threshold of €7 million in annual revenues in a Member State;” 2) “It has more than 100,000 users in a Member State in a taxable year,” or; 3) “Over 3000 business contracts for digital services are created between the company and business users in a taxable year.”

EU & Ireland Speak Out on Revenue Tax for Digital Companies

Talking about this latest proposal, EU Economics Commissioner Pierre Moscovici said: The digital economy is a major opportunity for Europe and Europe is a huge source of revenues for digital firms. But this win-win situation raises legal and fiscal concerns. 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 Member States, 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.”

Moscovici also dispelled the notion that this is a direct affront to US tech companies or the Trump administration.

“This is neither a GAFA (Google, Apple, Facebook and Amazon) attack nor an anti-U.S. attack proposal that will target any company or any country,” he said.

EU & Ireland Speak Out on Revenue Tax for Digital Companies

Irish government officials and economic analysts were less impressed by this EU initiative.

Irish Prime Minister Leo Varadkar opposed the EU’s digital tax plan, referring to it as “ill judged” considering the ongoing tariff and tax tensions between Europe and the US.

“It is important to emphasise that Ireland is committed to global tax reform. However, we are very much for the view that global solutions are needed. I will strongly argue that the EU should wait for the OECD to complete its work before deciding on how to act,” he added.

Furthermore, Conall MacCoille, Chief Economist with Davy Group stockbrokers in Ireland, believes “the digital taxation measures could potentially make it less favourable for [information and communications technology] companies to relocate intellectual property to, and expand their operations in Ireland — undermining the efficacy of the corporate tax regime.”

Michael McGrath, a spokesperson for Irish opposition party Fianna Fáil, also thinks “the proposals . . . encroach directly into an area — corporate tax — that is a national competence under EU law” and must be rejected by the Varadkar administration.

Technology lobbying groups also rejected the proposed changes.

Christian Borggreen, VP of the technology trade association CCIA Europe, said, “The proposed turnover tax aimed at online platforms is discriminatory and ignores the global consensus that the so-called ‘digital economy’ should not be singled out.”

“We encourage the EU to seek international tax reform through the OECD rather than pursuing discriminatory, unilateral actions with risks to Europe’s digital economy and international trade relations,” Borggreen argued.

Both Germany and France have supported the aforementioned changes to digital taxation in Europe to the consternation of smaller jurisdictions such as Ireland and Luxembourg whose business models might be hindered by the implementation of these proposed levies.

As explained by Simon Nixon for the Wall Street Journal, however, “the reality is that the Commission’s proposals may be going nowhere too. EU decisions on tax must be taken by unanimity and a number of smaller member states in particular, not least Ireland, are deeply opposed to any digital tax.”

Will these proposed taxes actually go anywhere? Or are they destined to fail?

Let us know in the comments section!