European Commission details digital tax proposals

The European Commission has issued a pair of proposals which would dramatically increase the amount of tax paid in the region by technology companies, even when said companies claim their profits are generated elsewhere.

Following calls for new taxes on technology companies designed to force companies like Apple, which was found to have illegally dodged £11.32 billion in taxes it should have paid the Irish government, to pay their fair share on revenue generated in European regions, Finance Minister Bruno Le Maire declared that a new tax bill was in the works. Now, the European Commission has unveiled not one but two new proposals it claims will help bridge the gap.

'The digital economy is a major opportunity for Europe and Europe is a huge source of revenues for digital firms. But this win-win situation raises legal and fiscal concerns,' claims Commission for Economic and Financial Affairs, Taxation, and Customs Pierre Moscovici of the need for the proposals. '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.'

The first proposal is for a common reform of the European Union's corporate tax rules with a view to improving their applicability to digital activities from companies which do not have a physical presence in the region. Under the proposal, any company which exceeds a threshold of €7 million annual revenue in an EU Member State, has more than 100,000 users in a Member State in a given tax year, or has more than 3,000 business contracts for digital services created between itself and EU business users in a given tax year, will be taxed at the same level as if the company had a physical presence in the Member State.

The second is designed to be more immediately applicable than a wide reform of current tax regulation: An interim tax on selected revenue form digital activities, currently untaxed, including but not limited to revenues generated by selling online advertising space, 'digital intermediary activities' whereby users interact with other users and are able to sell goods and services to each other, and the sale of data generated from user-provided information. These regulations would apply to companies with total annual worldwide revenues above €750 million and EU revenues above €50 million - which, the Commission claims, could generate €5 billion a year in additional revenue for Member States if introduced at a three percent tax rate.

The proposals have been submitted to both the Council and the European Parliament for discussion, with no firm date for their implementation yet tabled.