Several of the European Union’s major economies are calling for tax reform across the bloc that responds to where tech platforms generate revenue, not just where they book profit — arguing that the current system allows digital giants to minimize tax liabilities by using subsidiaries sited in low-tax countries such as Ireland.
According to Reuters, finance ministers in France, Germany, Spain and Italy have written a joint letter calling for digital multinationals such as Amazon and Google to be taxed in Europe based on their revenues. “We should no longer accept that these companies do business in Europe while paying minimal amounts of tax to our treasuries,” the four ministers wrote in a letter seen by the news agency.
France is apparently leading the push to reform taxation rules and create an “equalization tax” on revenue earned from digital business activity that would bring taxation to the level of corporate tax in the country where the revenue was earned.
Last year the UK Treasury reached an agreement with Google that it would pay tax on UK ad revenue going forward, following an enquiry into its existing tax arrangements (at the same time the company paid just £130M in back taxes — an amount critics described as derisory).
Of course the UK is absent from this push, given it’s currently negotiating its exit from the bloc. But brexit may well also be on the minds of the EU ministers given indications the UK is looking at reducing its domestic rate of corporate tax — and could do so radically after it leaves the EU in a bid to make itself a more attractive location for businesses vs Europe (the UK government announced a review of the corporate tax rate last November). So brexit poses a strategic risk to tax receipts within the EU — and could strengthen the case for a system that can tax revenue.
The four finance ministers are apparently intending to present their thoughts to other EU counterparts at a meeting later this month where a discussion on the specific tax reform concept has also been scheduled.
“The amounts raised would aim to reflect some of what these companies should be paying in terms of corporate tax,” the ministers said in the letter, which was reported earlier by the Financial Times.
The FT reports that a French government official suggested a turnover tax could be set at somewhere between 2 and 5 per cent of revenue.
Of course any change in the bloc’s taxation rules would need to be agreed by all EU Member States — including low-tax countries such as Ireland and Luxembourg. Which presents one clear barrier to reform.
A spokesman for the European Commission told us that the issue of taxing digital companies is something it’s been looking at for several years, while welcoming the interest being shown by Member States.
Vanessa Mock, spokesperson for Taxation and Customs Union, provided TechCrunch with the following response:
- We’re very happy to see political interest in the taxation of digital companies. We trust that this momentum can be harnessed to drive forward our efforts to find solutions to the taxation of the digital economy. We welcome the Estonian presidency’s decision to put this on the agenda of the upcoming informal ECOFIN and organising the Tallinn Digital Summit at the end of the month.
- As for every business, digital giants should pay their fair share of tax in the countries where their profits are earned.
- This is of course not a new issue. It’s something that we at the European Commission have been looking at closely for a number of years. We’ve also been very active on the international front, contributing to the global work on this, notably at the OECD and in the G20.
- What’s important now is that we move forward with a common approach that can protect the Single Market. It’s essential that we maintain a level playing field so that all companies pay their fair share and that profits are taxed where the value is created – as they should be. It’s on this basis that we proposed the CCCTB [Common corporate tax base] for the more traditional ‘bricks and mortar’ economy. Now let’s look ahead to having the same principle apply to digital multinationals.
- This principle of fair taxation has been at the heart of efforts by the Juncker Commission to crackdown on tax avoidance and tax evasion, putting the EU in the driving seat of global efforts in this field. Unprecedented light has also been shone on the world of tax optimisation by the action we have taken to enforce EU state aid rules.