EU proposes major new tax on big tech companies

The European Commission proposed new rules on Wednesday that would have major technology firms such as Google, Facebook and Amazon fork over a larger share of their revenues to the European Union.

The newly proposed tax would impose a 3 percent rate on parts of their online revenue, in what is seen as a significant departure from how taxes are normally collected.

{mosads}The European Commission said it wants the change to “ensure that digital business activities are taxed in a fair and growth-friendly way.” The commission argued that current tax rules “were not designed to cater for those companies that are global, virtual or have little or no physical presence.”

Many countries are frustrated that major technology firms operate within their borders, but then book their taxes elsewhere at much lower rates.

“The amount of profits currently going untaxed is unacceptable. We need to urgently bring our tax rules into the 21st century by putting in place a new comprehensive and future-proof solution,” said commission vice president Valdis Dombrovskis.

The European Commission had previously taken enforcement action against Apple in 2016 for what it deemed to be unfair tax arrangements with Ireland. It ordered Apple pay over $14 billion in back taxes.

On Wednesday, the Commission said that while many large tech companies have large growth rates, they only pay an effective tax rate of 9.5 percent — under half the rate paid by traditional companies.

In one of the two offered proposals, companies eligible to be taxed at the new rate only have to meet one of the criteria of either exceeding 7 million euros in annual revenue in an EU member country, having at least 100,000 members in a member country over the course of a year or 3,000 business contracts for digital services in a year.

These conditions would be imposed regardless of whether or not a business has a physical presence in an EU country.

In the second proposal, an interim tax would be placed on revenue from online advertising, facilitating the sale of goods between platforms and the sale of user-generated data. The commission said it would want these taxes in place until it could develop larger “comprehensive reform.”

The American technology industry, which has kept a wary eye on tax developments in Europe, criticized the new proposal.

“We agree with the fundamental thesis of the European Commission: Today’s tax systems do not reflect that today’s economy is digital. Unfortunately, the EU’s proposal would exacerbate rather than solve this problem,” said Dean Garfield, the president of the Information Technology Industry Council, a lobbying group that represents major firms such as Facebook, Google and Amazon.

“We strongly urge the EU to reconsider its approach,” he said.