EU proposes to tax tech giants on revenue rather than profits


The European Commission is preparing a new tax on the revenue of huge tech companies, estimated to generate €4.8 billion ($5.9bn) a year, according to draft proposals seen by the Financial Times (may be behind paywall). Facebook, Google and Apple, the industry giants making billions in revenue every quarter, are seen as major targets.

The proposed digital tax is on readvertising revenues, digital subscription services, and income made by businesses selling data to third parties. The draft also notes that while traditional companies have paid an effective tax rate of 23.3 percent in the EU, digital companies pay on average 9.5 percent.

The taxing of revenue rather than profits is a bold step, and would garner much bigger sums for the authorities. There has been commentary for some time that the big tech companies, sometimes called FAGA (Facebook/Apple/Google/Amazon), do not pay enough tax. In negotiations on tax overhauls, company representatives said they preferred taxing of profits (Reuters).

It would also make it harder for U.S. technology giants to cut their tax bills by channeling profits between countries. However, speaking for multinational law firm Clifford Chance, Dan Neidle said some technology companies could respond by restructuring their businesses so that they pay less tax in the UK and more in the U.S. (Financial Times – may be behind paywall).

However, for the Commission’s proposal to become law unanimous support from the European Union’s (EU) 28 member states is required. Convincing all members to agree on new tax proposals has been difficult for the commission in the past, according to the FT , with current EU rules on Value Added Tax (VAT) dating from 1993, when they were intended as a temporary solution.

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The new proposal is likely to face some opposition from the EU’s low-tax members such as Ireland and Luxembourg, as well as displease U.S. tech groups that have complained of unfair treatment in Brussels for a long time, according to the FT.

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