In the latest sign of mounting frustration with U.S. tech companies, the European Commission today proposed sweeping new taxes that would target large tech companies such as Google, Facebook, and Amazon.
Though the EC plan is tough, it faces an uncertain future, as it must be approved by all 28 member states. But if it goes into effect, tech companies with large revenue bases in Europe would be forced to pay 3 percent taxes on their European revenues, a figure that has been estimated at about $6 billion in new taxes.
“The digital economy is a major opportunity for Europe, and Europe is a huge source of revenues for digital firms,” said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation, and Customs, in a statement. “But this win-win situation raises legal and fiscal concerns. 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. This represents an ever-bigger black hole for Member States, because the tax base is being eroded. That’s why we’re bringing forward a new legal standard, as well an interim tax for digital activities.”
Collectively, this doesn’t amount to much for companies that basically print money in their basements, but they’ve been working hard to muster resistance on the part of U.S. government. That effort is being made more challenging as the Trump administration threatens tariffs elsewhere.
The tax proposal is intended as a first step while the EU tries to construct a more sophisticated way to track tech companies’ profits by location.
While Europe is trying to ignite its own tech startup economy, politicians here have grown increasingly furious at the influence of U.S. tech companies, triggering anti-trust investigations, proposals for revenue-sharing around content, new limits on digital platforms, and investigations into tax evasion schemes.
It’s the latter, in particular, that has built support in some corners of Europe for more direct taxation of tech companies. There is a feeling that U.S. tech giants 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.
It’s not clear how far down the tech ladder this new proposal would reach. The companies targeted are defined as:
- Exceeding a threshold of €7 million in annual revenues in a Member State
- Having more than 100,000 users in a Member State in a taxable year
- Having more than 3000 business contracts for digital services that are created between the company and business users in a taxable year
- Having total annual worldwide revenues of €750 million and EU revenues of €50 million
By this criteria, a ruling could also impact U.S. companies like Uber and Airbnb. It’s less certain whether a company like Netflix would be hit.