EU tells tech firms it wants to tax profit, not revenue

Pierre Moscovici, Member of the European Commission in charge of Economic and Financial Affairs, Taxation and Customs, participates in the meeting of the High-Level Group on Taxation of the Digital Economy. [© European Union , 2018 / Source: EC - Audiovisual Service]

The European Commission told top digital firms on Wednesday (7 March) that its favourite choice to reform online taxation would be a new method to tax profits rather than revenues, a move the industry welcomed.

The European Union is working on a tax overhaul aimed at increasing the bill of large companies like Amazon, Google and Facebook. The big EU states say they pay too little by re-routing their EU profits to low-tax countries such as Luxembourg and Ireland.

A preliminary draft of the proposal, seen by Reuters, said a structural solution would involve taxing corporate digital profits in the countries where they are made. They are now taxed where companies are headquartered.

However, those changes would probably take lot of time to be negotiated. So the Commission also put forward in the draft a temporary solution: taxing corporate revenue, regardless of whether a company makes profits.

Moscovici asks tech industry to be 'part of the solution' before digital tax proposal

Pierre Moscovici, the EU Tax Commissioner, warned a tech industry conference on Tuesday (20 February) that he is determined to introduce new legislation to tax digital companies next month.

As the drafting of the proposal reaches its final stage before publication, expected on March 21, the Commission held a meeting in Brussels on Wednesday with representatives of tech companies, including Amazon, Google and Facebook.

Companies said they preferred a solution based on taxing profits, which would shield start-ups, a Commission official said after the meeting.

“Both these points are in line with the Commission’s own approach,” the official added.

“There was a good and constructive exchange of views that provided useful input for the way forward,” a commission spokeswoman said.

Although no option has been ruled out so far, the Commission signalled that it was listening to companies and that initial drafts could be substantially changed.

Ireland's concerns over EU digital tax ‘gaining wider support’

Ireland’s concerns over how the European Union should proceed with taxing large digital businesses are shared by a growing number of countries, Finance Minister Paschal Donohoe said on Monday (5 February).

The proposal to tax revenues is opposed mostly by companies that work on small margins and that usually pay little or no tax because their profits are low. The e-commerce giant Amazon could be one of the companies to be most hit by such a move.

Some American companies could, however, offset any additional tax paid to EU states against their US tax bills.

Since US tax reforms will force them to pay at least a global rate of 10.5% on their overseas income, multinationals could shift their tax liabilities to the EU insofar as bills are below that rate.

The initial draft said a temporary tax might be 1 to 5% of gross digital revenues. It would be applied to companies with revenues above €750 million worldwide and with EU digital revenues of at least 10 million euros a year.

Tax fight draws divisions at EU digital summit

Supporters of a controversial new push to tax tech giants insist they will overcome fierce opposition from a group of around 10 member states.

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