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Direct hit toward the tech companies
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Loading...Tech giants including Google, Amazon and Facebook could soon face higher taxes in Europe.
The European Commission — the executive arm of the European Union (EU) — unveiled plans Wednesday to tax companies where they actually generate business, rather than where they are headquartered.The proposed changes to how digital businesses are taxed could substantially increase the amount such firms have to pay in taxes.
According to data from the European Commission, digital companies pay on average an effective tax rate of 9.5 percent — compared to 23.2 percent for traditional businesses.
"The digital revolution has overturned our economies and also shaken profoundly the way businesses create value today. The idea is to ensure equal treatment and fairer taxation." said Pierre Moscovici, the EU's commissioner.
European efforts to force big companies to pay the correct amount of taxes are not new. Amazon, for example, which is headquartered in Luxembourg but operates across different European companies, was found to benefit from special tax arrangements. Last year, the European Commission ordered Luxembourg to recover 250 million euros ($306.98 million) in "illegal" tax benefits from Amazon.
According to the new proposed rules, Amazon will stop being taxed in Luxembourg for being headquartered there, but will instead have to pay taxes in every country where consumers are using it.
A digital firm will be taxed where it fulfills one of the following criteria: its annual revenues in a European country exceeds a 7 million euro ($8.6 million) threshold; it has more than 100,000 users in a taxable year; or over 3,000 business contracts for digital services are created between the company and business users in a taxable year.
Source: Bloomberg Pro Terminal
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