The European Commission on Wednesday detailed the first set of legal proposals meant to combat digital tax avoidance on the Old Continent and crack down on Internet giants such as Google, Facebook, and Amazon who have so far been paying significantly lower taxes relative to their revenues compared to traditional companies operating within the political bloc. Economic Commissioner Pierre Moscovici described the proposal as being aimed at creating a level playing field and one that ensures all firms in the European Union are taxed fairly, with that sentiment being echoed by other EC officials.
According to the EU’s data, nine out of twenty largest companies in the world are now digital and on average pay a 9.5-percent tax rate in Europe, whereas that rate grows to 23-percent for traditional enterprises. The EU’s single-market strategy depends on all participants paying their fair share of taxes as anything else jeopardizes traditional businesses, Mr. Moscovici said. Simultaneously, digital firms have an average annual revenue growth of 14-percent compared to 0.2-percent recorded by conventional enterprises. The EC put forward a proposal that would see companies be taxed based on revenue, user, and contract thresholds. A digital company would hence be taxed after surpassing the equivalent of $8.6 million in revenue, 3,000 digital service contracts, or 100,000 users per fiscal year, according to the current proposal.
A separate interim solution suggested by the EC comes in the form of a sales tax targeting online advertising revenue which would be enforced until a more permanent legal framework is fully implemented, with the measure itself only applying to companies whose annual turnover amounts to the equivalent of $920 million or more. In practice, the proposal primarily targets U.S. digital giants, though the EC repeatedly stated its tax crackdown is meant to ensure everyone is paying their fair share of obligations and isn’t encumbered by such burdens because their rivals or other participants in the economy aren’t doing the same. The proposal itself is expected to be discussed and revised in the coming months and likely won’t be enacted in any shape or form until the second half of the year.