Commission eyes €5 billion annual windfall with new digital tax

Commission eyes €5 billion annual windfall with new digital tax

The EU unveiled Wednesday proposals for a digital tax that targets USA tech giants, heaping more problems on Facebook after revelations over misused data of 50 million users shocked the world.

Under the European Union plan, revenue from the digital tax would be fairly distributed to where the companies actually operate, according to the level of activity in those countries and not the level of booked profit.

EU Economics Affairs Commissioner Pierre Moscovici will present proposals aimed at recovering billions of euros from mainly United States multinationals that shift earnings around Europe to pay lower tax rates.

The odds of the plan actually passing seem somewhat low. Notably, while big countries like France and Germany have pushed for changes, at least two smaller member states have opposed any changes to the system, which they say allows them to compete to attract employers by offering tax advantages. But if nothing else, the proposal is indicative of the larger trend that we've been seeing in the tech world recently - that major technology companies need to be held more accountable.

It is created to apply to activities in which users play a role in value creation - whether via online advertising, such as in search engines or social media, via online trading or in the sale of data about users.

"This is not an anti-American tax, this is not an anti-Gafa tax, this is a digital tax", said Pierre Moscovici, the European commissioner for tax, who said 150 firms would be affected, including European, American and Asian ones. "This represents an ever-bigger black hole for Member States, because the tax base is being eroded".

To deal with this problem, the Commission has also proposed a wider reform of corporate tax rules, so that profits are registered and taxed where businesses have significant interaction with users through digital channels.

However, many European Union leaders, who will debate the issue of how to claw taxes from the elusive new digital economy at a Brussels summit on Thursday, oppose the executive's proposals.

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"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", said Christian Borggreen, vice president of tech trade association CCIA Europe.

The tax would be collected in countries where the users are located.

Tech industry groups have complained that it is wrong to tax revenues as that would unduly hit companies, such as Amazon, with thinner margins.

Amazon declined to comment.

Under existing tax models, a country only has the right to tax a company if it has a taxable presence or "permanent establishment" in that country.

Facebook, which also declined comment, changed its accounting past year to record local advertising revenues in the countries where it is present instead of its Dublin base.

"Over the years many "temporary" or transitional tax measures have in fact become embedded into the economy, and negotiating changes to that status quo are far more troublesome than it would have been to implement a better solution from scratch", Chas Roy-Chowdhury, ACCA's head of Taxation, said.

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