Tech giants such as Apple, Facebook and Google facing 3pc EU digital tax

16 Mar 2018

Google offices in Dublin. Image: EQRoy/Shutterstock

Tech multinationals operating in Europe may soon be hit with proposed levy on revenues rather than profits.

The EU is looking to raise €5bn a year through the introduction of a digital tax of 3pc on the revenues of tech giants, rather than their profits.

Next week, the European Commission will reveal a three-pronged digital tax in response to calls in France, Germany and the UK for a tougher approach to tax avoidance by tech giants.

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It is envisaged that the levy of 3pc will be raised against advertising and subscription revenues generated by digital companies such as Facebook, Google, Apple or Spotify, as well as income made from selling personal data to third parties.

Are tech giants paying enough tax?

In recent weeks, we reported how sweeping new tax changes in the UK will see tech firms taxed on revenues rather than profits.

There is considerable unease in the UK, France and Germany that tech giants do not pay enough taxes. Google, for example, reported £1bn in revenues in the UK in 2016 and a pre-tax profit of £149m.

A draft proposal indicates that a tax will be applied to companies with a global turnover of more than €750m and total taxable revenues of €50m generated in the EU.

“The application of the current corporate tax rules to the digital economy has led to a misalignment between the place where the profits are taxed and the place where value is created,” the text read.

Ireland is understood to be opposed to the proposal for a digital services tax. The fear is that the tax threatens to hit Irish corporate tax revenues and lessen the attraction of the country’s 12.5pc corporate tax rate.

The 3pc tax is being put forward by Brussels as an interim solution, pending more far-reaching digital reforms.

It is understood that the new tax would be levied by countries where digital users are located. If they live in different EU countries, “the tax base will have to be distributed in either member states according to some allocation keys”.

In this way, revenues from the supply of digital advertising should be allocated to countries in proportion to the number of times an ad has been displayed on a user’s device in that country.

This would result in more tax being paid in large consumer markets such as France and Germany, and less in Ireland, with payments written off as an expense against corporation tax, which would threaten Irish revenues.

The new tax will be discussed at a summit meeting next week where Ireland will either get on side with the proposals or execute its power of veto against them.

Google offices in Dublin. Image: EQRoy/Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years