EU may impose 3% tax on large digital companies’ revenue

MOVE FOLLOWS CALLS BY SEVERAL COUNTRIES TO LOOK INTO METHODS TO TAX TECH FIRMS IN A WAY THAT BETTER CAPTURES TRUE VALUE CREATED IN THE REGION

BRUSSELS: Large digital companies operating in the European Union, such as Alphabet Inc. and Twitter Inc., could face a 3% tax on their gross revenue based on users’ locations, according to a plan by the European Commission.

The proposal by the EU’S executive arm outlines how a targeted levy on sales would increase the tax bill technology companies face, as the bloc seeks to raise money from an industry it says provides less than it should to public coffers. It follows calls by several countries led by France and Germany to look into methods to tax the firms, including Amazon.com Inc. and Facebook Inc., in a way that better captures the true value created in the region.

The commission’s proposal comes amid renewed interest in technology companies, which are struggling to contain the fallout from a data security scandal that has raised the risk of a regulatory crackdown and sent their stocks plunging. The commission, seeking to close loopholes created by uncoordinated European regulation, says digital firms have an average effective tax rate of 9.5%, almost half of that the traditional businesses.

“The amount of profits currently going untaxed is unacceptable,” European Commission vice-president Valdis Dombrovskis said in a statement. “We need to urgently bring our tax rules into the 21st century by putting in place a new comprehensive and future-proof solution.”

The move could further strain transatlantic ties, following a series of spats between the EU and the US ranging from trade protectionism to Iran’s nuclear accord and climate policy. The proposed tax is also set to draw the ire of US companies, which have warned the bloc that such a tax could harm global business, as well as that of the US Treasury, which has opposed proposals that single out digital companies.

“This proposal harms business certainty in Europe and would chill trade and investment from companies across the globe,” Dean Garfield, chief executive officer of the Information Technology Industry Council, said in a statement.

EU tax chief Pierre Moscovici told reporters in Brussels on Wednesday that the proposed levy wasn’t aimed at the US nor was it meant to target specific nations or companies.

The levy will apply to revenues created from activities where users play a major role in value creation and which are the hardest to capture with current tax rules, the commission said.