EU proposes new tax for big US tech

brussels — Large companies with significant digital revenues in the European Union such as Google and Facebook could face a 3 per cent tax on their turnover under a draft proposal by the European Commission seen by Reuters.

The proposal, expected to be adopted next week and still subject to changes, updates an earlier draft which envisaged a tax rate of between 1 and 5 per cent. The tax, if backed by EU states and lawmakers, would only apply to large firms with annual worldwide revenues above €750 million ($924 million) and annual “taxable” revenues above €50 million in the EU. The threshold for EU revenues has been raised from €10 million initially foreseen to exempt smaller companies and emerging startups from the tax.

Large firms like Uber, Airbnb and Amazon could also be hit by the new levy, which would apply across the 28 EU countries. Big tech firms have been accused by large EU states of paying too little tax in the bloc by re-routing some of their profits to low-tax member states.

While an earlier version of the draft seen by Reuters mentioned several companies, the latest proposal contained no such references. Services that will be taxed are digital advertising, which would capture both providers of users’ data like Google, and companies offering ad space on their websites, like popular social media such as Facebook. The tax would be also be levied on online platforms offering “intermediation services,” a concept under which the Commission includes gig economy firms such as Airbnb and Uber.

Digital market places, including Amazon, would also be within the scope of the levy. Companies with thinner margins, like Amazon, which often operate at a loss would be hit hard by a tax on turnover, whereas they are largely exempt from taxes on profits. “Taxing revenues is the wrong approach to addressing some legitimate questions regarding cross-border tax policies,” Josh Kallmer, senior vice president at the US-based Information Technology Industry Council, which represents Google, Facebook, Amazon and other tech firms, told Reuters in an e-mailed statement. He urged the EU to avoid unilateral moves and coordinate tax reforms at international level.