Silicon Valley faces sweeping new taxes in Europe

Darnell Taylor
March 21, 2018

There is a feeling that US tech companies like Apple, Amazon, and Google are using European countries to evade or reduce their tax bills, a complaint highlighted by the decision to require Apple to pay billions of taxes back to the Irish government.

The legislation comes as the United States unsettles Europe with its own tax reform and the threat of a trade war along with reports that Facebook user data was accessed by a consultancy to help President Donald Trump win the 2016 election.

Under EU law, firms like Google and Facebook can choose to book their income in any member state, prompting them to pick low-tax nations like Ireland, the Netherlands or Luxembourg. While unanimity will be hard - Irish prime minster Leo Varadkar on Wednesday called the tax "ill judged" - some countries may introduce their own revenue taxes if the EU-wide initiative ultimately collapses.

That tax could add 5 billion ($6.1 billion) a year to the coffers of member countries, the European Commission estimates. That's why we're bringing forward a new legal standard as well an interim tax for digital activities.

German industry, meanwhile, has warned of negative consequences resulting from the tech tax proposal, with the Federation of German Industries (BDI) saying that there could be "collateral damage" to industrial companies as politicians seek to reap tax money from tech firms around the world.

"The amount of profits now going untaxed is unacceptable", European Commission Vice President Valdis Dombrovskis said in a statement. "But the amount of profits now going untaxed is unacceptable".

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The European Commission has today unveiled its proposals in an effort to get leading (and mostly American) technology companies to pay more tax.

Eventually, digital companies would be taxed on their profits in any European Union country where their annual revenues exceed €7 million, they have more than 100,000 users or more than 3,000 contracts are signed with business users in a year, the European Union executive says. As a result of no physical presence, which is a key criteria for determining corporate tax liability, the profits are funneled to the company's home country or European headquarters, escaping tax in the country where customers are based.

These numbers are, however, disputed by the tech giants, which have criticised the tax as a "populist and flawed proposal".

"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", said European commissioner Pierre Moscovici. We would prefer rules agreed at the global level, including at the OECD.

The American Chamber of Commerce, representing USA businesses in Europe, also expressed reservations, saying "we believe that the conversation should take place in a multilateral context in order to ensure widespread agreement".

On Friday the OECD, which is also working on ways to modernise the global rules of corporate tax to take better account of digitalisation, said it does not recommend the introduction of interim measures by individual countries or groups of states.

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