EU plans 3% digital tax on turnover of large firms - draft

Large companies with significant digital revenues in the European Union such as Google and Facebook could face a 3 per cent tax on their turnover under a draft proposal from the European Commission.

The proposal, expected to be adopted next week and still subject to changes, has been modified from an earlier draft which put the planned corporate rate between 1 and 5 per cent.

The tax, if backed by EU states and MEPs, would only apply to large firms with annual worldwide revenues above €750 million and annual “taxable” revenues above €50 million in the EU.

The tax plan is seen as a potential threat to the Irish economy because it could diminish the appeal of our 12.5 per cent corporation tax rate.

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Big tech firms have been accused by large EU states of paying too little tax in the bloc by re-routing some of their profits to low-tax member states such as the Republic.

Other large US firms such as Uber, Airbnb and Amazon could also be hit by this new levy that would apply across the 28 EU countries.

While an earlier version of the draft of the proposal mentioned several companies, the latest proposal contained no such references.

Services that will be taxed are digital advertising, which would capture both providers of users’ data such as Google, and companies offering ads space on their websites such as popular social platforms such as Facebook.

Online platforms

The tax would be also levied on online platforms offering “intermediation services,” a concept under which the commission included in its original draft gig economy firms such as Airbnb and Uber. Digital market places, among them Amazon, would also be within the scope of the new levy.

The tax is presented in the draft as a temporary measure that would only be implemented if no deal is found on a more comprehensive solution which would tax the digital profits of companies in the countries where they are made, rather than where the firms are headquartered as is the case now.

The new tax would be levied by the countries where the digital users are located. If they live in different EU countries, “the tax base will have to be distributed in either member states according to some allocation keys,” the draft document says.

For instance, revenues resulting from the supply of digital advertising should be allocated to countries in proportion to the number of times an advertisement has been displayed on a users’ device there.

– Reuters