To help cover the loopholes that tech companies use to get of paying taxes, the European Commission has unveiled radical measure to better tax tech companies with large operations in its member states. Under the proposal, it would allow countries inside the EU to tax profits that are created within their borders, regardless of whether the business has an office there or not.
In this rule, a company would be eligible to be taxes if it had more than 100,000 users, and earns more than 7 million euros annually, or over 3,000 “business contracts for digital services” inside the country. With this new taxation proposal, the European Commission hopes to stop companies from re-routing revenue to countries that offer more favorable tax laws.
“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,” Pierre Moscovici, Europe’s commissioner for economic and financial affairs, taxation and customs said. “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.”
The Commission’s goal for this is to offer a better long-term solution, which it sees this as. In addition, it’s proposing an unorthodox interim tax that would apply to revenue, rather than profit generated inside the EU. Specifically speaking, this would apply to online advertising area, selling of user information, and “digital intermediary activities” (Airbnb and eBay, for example) that allow users to sell goods and service to one another. It’s worth noting that this would only apply to large companies, with revenues that exceed 750 million euros worldwide and 50 million euros inside the EU. Three percent is the rate that was discussed, according to the Commission, and it would generated 5 billion euros for EU members.
Before you get all worked up, it’s worth pointing out that these are just proposals right now. Though, they are a drastic shift in taxation methods that would stop tech companies from shifting their profits to so-called tax havens. We’re expecting to see resistance to come from the industry and individual member states that have taxation ideas of their own. This is a start though. “We would prefer rules agreed at the global level, including at the OECD,” Valdis Dombrovskis, Europe’s vice-president for the Euro and social dialogue said. “But 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.”