EU Preps Tax Crackdown on Silicon Valley
September 21 2017 - 6:38AM
Dow Jones News
By Sam Schechner and Natalia Drozdiak
The European Union's executive arm said Thursday that it is
ready to propose new tax taxes on digital companies like Facebook
Inc. and Alphabet Inc.'s Google by next spring if there isn't
"adequate global progress" toward a rewrite of corporate tax rules
at an international level.
The bloc's executive arm, the European Commission, floated
several options that it said could be rolled out in the short term
to raise tax revenue on digital companies, which it contends
declare too little profit in the region. While the commission said
a global solution would be preferable, it added that it "stands
ready" to propose legislation if major countries, including the
U.S., can't make headway on new rules.
The threat of new tax legislation comes amid pressure from big
EU countries including France and Germany, which have recently
increased their push to change corporate tax rules at any level to
capture what they say are billions of euros in lost revenue.
Finance ministers for EU countries expressed support over the
weekend for renewing efforts to change international rules to
better reflect digital profits rules via the Organization for
Economic Cooperation and Development, a forum of wealthy countries
that includes the EU, U.S. and Japan.
European officials argue that companies are taking advantage of
outdated tax rules that were designed on the basis of physical
assets and where the companies operate, rather than virtual
businesses like online advertising and data mining.
"It's a question of fairness: Digital companies use European
networks and infrastructure, and often their content and data are
created by Europeans. Like all taxpayers, they must pay their fair
share of tax," said EU finance chief Pierre Moscovici, adding that
the current system allows for "a big loss in tax revenues for the
budgets of EU member states."
Failing any progress at the OECD level, the commission said its
preferred route would be to amend previously proposed rules to
reform the corporate tax base in Europe. The initiative--known as
the common consolidated corporate-tax base--is designed to create a
common set of rules spelling out how profits should be taxed across
the bloc. But any changes could further delay the legislative
process as that proposal has already been held up in negotiations
with member states who differ over how to proceed.
The other options that the European Commission floated Thursday
as short-term and supplementary measures include an "equalization
tax" on digital revenue--as opposed to profit--that has been
promoted by France and garnered the support from at least 10 EU
nations last weekend. It would impose a new tax on companies that
have very high digital revenue but pay little in corporate income
tax, according to officials in the French finance ministry.
The commission also mentioned a potential withholding tax on
digital transactions that would be levied on online providers of
goods and services that aren't resident in the EU, and a levy on
digital services that would hit transactions made between
in-country customers of a nonresident company--such as if a company
sold online ads to people in France without a taxable presence
there.
The commission acknowledged in its paper Thursday that these
taxes have "pros and cons" including potential conflicts with tax
treaties aimed at avoiding double taxation, as well as with state
aid rules and free-trade agreements. Any tax legislation would also
require debate that could stretch for months, and would typically
under current rules require unanimous approval by EU member
states.
"Yet something has to be done," the commission added.
Write to Sam Schechner at sam.schechner@wsj.com and Natalia
Drozdiak at natalia.drozdiak@wsj.com
(END) Dow Jones Newswires
September 21, 2017 06:23 ET (10:23 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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