In a move that could heighten the current tensions between Europe and the US, the EU has recently announced that will be introducing a new tax for digital companies. The EU claims that companies like Facebook, Google and Amazon must be made to pay “fair” amounts of tax on their profits from advertising and user data. The commission has called for tech giants to pay 3% tax on their income in the country they’ve made the profits from, rather than in the country they’re headquartered in.
The fairness of the tax system in Europe has been questioned in recent years. The dominance of digital companies is considered as one of the biggest long terms threats to the EU economy. It’s estimated that digital firms only pay 9.5% tax on average, whereas other businesses pay an average of 23.2% across the EU. The commission believes that the introduction of the next tax will generate an income of around €5 billion a year, and predicts that this figure would increase further over time.
The plans have been in the pipeline for some time, and now they will be discussed by European leaders at the upcoming EU summit. Under current EU rules, large companies are able to register in countries offering lower tax rates – which has caused outrage from the public as some social media companies are paying much lower rates than many feel they should be. Once introduced, the move would also apply to other online marketplaces like Uber and Airbnb.
The proposals have been met with mixed reactions across EU member states. France has lead the debate for its introduction, and British prime minister Theresa May has backed the introduction of a new tax system. A Downing Street spokesperson recently commented: “They are constructive proposals, we’re going to look at them seriously.” However, they’ve been met with criticism from some countries like Luxembourg, Estonia and Ireland, who have expressed their concerns that it could be giving a financial advantage to countries outside the EU like Japan and the US.
There’s also been some criticism that the new tax is targeting US firms. Although EU officials have admitted that they want to prevent European companies from being undercut, they’ve rejected the claims that the plans are purely aimed at America. Pierre Moscovici, the European commissioner for tax said in an interview that around 150 companies would be affected across the world, which includes European, Asian and American based firms. “This is not an anti-American tax, this is not an anti-Gafa tax, this is a digital tax,” he said.
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