Facebook, Amazon, Apple and Alphabet need to be prepared to pony up. European Union leaders were unable to come to an agreement for how to tax digital businesses last year, so now individual member states are pushing forward with their own digital taxes.
The EU has long been frustrated by the lack of unification of digital taxes. Traditional companies pay on average 23% tax in the EU; digital companies pay only 8% or 9%. Low digital tax rates drew many Silicon Valley giants to set their headquarters in Ireland or Luxembourg, where they’d get to preserve more of their total EU profits. Amazon, for example, paid merely EUR16.5 million on its 2016 European revenues of EUR21.6 billion.
The initial proposal of a 3% tax on digital companies’ revenues got pushback from Ireland, Luxembourg and Scandinavian states. France and Germany refined the proposal to taxing digital advertising revenue specifically, but talks in December faltered. One major point of contention was that the plan would tax revenues rather than profits. The digital tax negotiations will be rebooted in March.
In the long term, the Commission wants to see the EU’s corporate tax rules reformed so that companies are taxed on their profits based on the location of their customers and users, rather than the location of their headquarters. In the meantime here’s where Silicon Valley giants are going to have to start paying digital taxes in Europe:
France’s digital tax came into effect Jan. 1. Finance minister Bruno Le Maire expects it to raise about EUR500 million ($567 million). A Google official said it was prepared to comply. Last year Google’s French operations paid EUR14 million ($15.8 million) in corporate tax on EUR325 million ($370 million) of revenue.
Chancellor Sebastian Kurz said last week he intends to introduce a digital tax in Austria in 2020, namechecking Facebook and Amazon specifically. The details will be revealed after next week’s cabinet meeting.
In April 2020, the U.K. will start collecting a 2% digital tax on domestic revenue made by companies with annual revenues of at least ?500 million ($628 million) worldwide. The government expects to collect ?400 million a year ($503 million).
Spain has plans for a 3% tax on digital services provided by companies with worldwide revenues of at least EUR750 million ($850 million), with at least EUR3 million ($3.4 million) from Spain. The digital tax is to go into effect this month pending approval from parliament.
Italy has proposed a 6% digital tax to go into effect in April, on companies with worldwide revenues of at least EUR500 million ($567 million), with at least EUR50 million ($56 million) of that from Italy.