EU Executive Arm To Take New Tack in Taxing Tech Giants
September 13 2017 - 8:56AM
Dow Jones News
By Natalia Drozdiak and Sam Schechner
The European Union's executive body on Wednesday pledged to make
a proposal for new rules to tax internet giants, such Alphabet
Inc.'s Google and Facebook Inc., embracing France's push for extra
measures within the bloc to squeeze more money out of large
multinationals operating in Europe.
The move by the EU Commission coincides with a joint drive for
the tax led by France and backed by Germany, Spain and Italy. Mr.
Juncker flagged the coming proposal as part of a broader statement
outlining the priorities of the bloc's executive body for the next
two years.
Finance ministers from the four countries in a recent letter
called on the commission to devise a proposal that would establish
a so-called "equalization tax" on the revenue generated in Europe
by digital companies so that the amounts raised would "aim to
reflect some of what these companies should be paying in terms of
corporate tax."
The four ministers plan to spell out more detailed suggestions,
and hope to drum up more support, at a gathering of the bloc's
finance ministers in Tallinn, Estonia this Saturday.
The push marks the EU's latest attempt to crack down on what
officials see as tax avoidance in Europe and to assure citizens
that large companies are paying their fair share of tax in the bloc
where some governments are still struggling to stabilize public
finances after the financial crisis.
Officials in France in particular have chafed for years at how
little tax they say tech companies pay. Over the years, they have
vowed multiple efforts to claw back more, floating ideas to tax
internet advertising or even use of bandwidth or personal data by
firms, but have pulled back because passing a measure at the
national level wouldn't hit big multinationals.
Instead, France has become an enthusiastic proponent of efforts
by the Organization for Economic Cooperation and Development to
reduce what it calls profit shifting, and efforts by the EU to
establish a common tax base.
French pressure on the topic rose over the summer, after a
French court threw out a EUR1.11 billion ($1.33 billion) tax bill
that France's tax authority had issued Alphabet Inc.'s Google,
arguing that it should have declared more profit--and therefore
paid more tax--in the country.
In addition to promising an appeal, France's new finance
minister, Bruno Le Maire, vowed to pursue new tax rules for tech
companies. Behind the scenes, he also worked hard to woo other big
Western European countries to support his position, eventually
signing up Germany, Italy and Spain, according to a person close to
the French finance ministry.
Under Mr. Le Maire's proposal, which is still being fleshed out,
technology companies with revenue above a certain level would be
liable to pay a tax on the turnover from customers in each EU
country. The level of the proposed tax hasn't been settled, but
could end up between 2% and 5% of revenue, the person close to the
ministry said. The level would be calibrated to compensate for what
the government thinks the companies would pay in income tax on
their profits, if that revenue were reported in those countries,
that person said.
That could lead to big new tax bills. Facebook reported that in
2016 its European revenue was EUR2.06 billion, although that figure
includes countries that aren't part of the European Union. Facebook
declined to comment on the proposal.
Another formula that has been floated for the EU-level rules
would be to tax online advertising, according to an EU official.
However, no details have been completed and any concrete proposal
would take time, especially as officials seek to find a rule that
would apply to a range of different business models, from Airbnb
Inc. to Apple Inc.
Executives at tech companies say the proposals are misguided
because the firms create the bulk of their value in the U.S.,
making much of their profit from European revenue taxable in the in
the U.S., as well. But Europeans argue that those profits are fair
game to tax because the U.S. lets companies defer taxes on profit
they keep offshore. Tech companies often do so via subsidiaries
based in countries with no corporate income tax.
The appeal of a tax on turnover that would rest on top of the
existing tax system is simplicity: Countries could pass the new tax
without needing to update a patchwork of tax treaties or upsetting
a delicate balance between national income-tax regimes, said the
person close to the French finance ministry. If approved, each EU
member state would implement the tax nationally.
The EU has struggled for years to close tax loopholes because
all EU countries, including low-tax jurisdictions like Ireland and
higher ones like Germany, usually must agree unanimously on tax
matters.
Regulators in Brussels have found another way around that
blockade--by using their powers to enforce the bloc's state-aid
rules and homing in on sweetheart tax deals governments have issued
to large multinationals. The EU last year demanded that Ireland
recoup roughly EUR13 billion of unpaid taxes accumulated over more
than a decade by Apple Inc.
EU Commission President Jean-Claude Juncker on Wednesday
suggested that member states should seek to approve tax legislation
by majority vote, rather than a unanimous vote, so that
legislation--including the coming proposal for taxing tech
companies--can get passed more quickly.
Write to Natalia Drozdiak at natalia.drozdiak@wsj.com and Sam
Schechner at sam.schechner@wsj.com
(END) Dow Jones Newswires
September 13, 2017 08:41 ET (12:41 GMT)
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