Europe Wants Tax Tech Giants To Ensure They Pay 'Their Fair Share'

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"Digitalisation brings countless benefits and opportunities", said Valdis Dombrovskis, VP for the Euro and Social Dialogue.

What should matter, as far as the Commission is concerned, is not where the salesperson (or webserver) is located, but where the users or customers are. Current tax rules were not created to cater for digital companies that may be global, virtual or have little or no physical presence in the countries where their users are based. The first two conditions are that the business exceeds a threshold of €7 million in annual revenues in a member state or has more than 100,000 users in a member state in a taxable year.

EU Economics Commissioner Pierre Moscovici brushed off accusations that he was going after rich American tech companies to enrich EU coffers and France, Germany, Italy, Britain and Spain welcomed the proposals in a joint statement.

After Facebook (Nasdaq:FB) shares fell regarding the recent scandal where the data of nearly 50 million of its users came into the possession of Cambridge Analytics, the European Union (EU) announced plans to apply a revenue tax to big-name digital companies, including Facebook.

Smaller European digital start-ups and companies, such as Netflix, which depend on subscriptions will be spared from paying the EU's digital tax.

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Is this a GAFA tax?

The proposed digital tax plan is "not a response, not a retaliation" to the USA tariffs, insisted Moscovici, adding that is has been "prepared for months and months".

The proposal is to tax companies according to where their digital users are based.

As for when the new measures come into effect there is no fixed timeframe yet. This is a major break from the traditional way of calculating tax based on profits.

The Commission made its proposals on 21 March and the Council was expected to discuss the matter the following day.

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The plans announced on Wednesday are not certain to be implemented, as they require the approval of the European Union's member states, and there is considerable disagreement over how much reform is needed.

The commission estimates that member states could raise around €5bn each year with the tax - an amount that "could increase in time", according to European Union tax commissioner Pierre Moscovici.

The new initiative could allow member states to tax profits that are generated in their territory, even if a company does not have a physical presence there. No doubt the nuances of transnational tax law are riveting, but it doesn't really matter, because the EC has spoken. Though, they are a drastic shift in taxation methods that would stop tech companies from shifting their profits to so-called tax havens. There will no doubt be resistance from the industry and individual member states that have their own ideas on taxation.

Other countries have argued that discussions and decisions on this issue should be tackled at a global level and with the help of the Organization for Economic Cooperation and Development, a group that advises its 35 members on tax policy.

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