On March 21, the European Commission hopes to propose ideas to redo tech giants' taxation schemes in the European Union. In total, 150 digital companies will be affected -- half American, and a third European. Governments around the world have been struggling to hold tech companies accountable under existing taxation laws. Many complain that existing tax laws do not capture a fair share of the earnings of an industry producing virtual value, and companies can thrive on seeking and exploiting loopholes in European regulations. Many governments have fought to keep global tech companies from shifting profits to low-tax jurisdictions. This debate has created a rift between the United States and Europe, as policymakers on both sides wish to impose their versions of taxes on foreign firms, but a final tax proposal requires unanimous approval across all 28 members of the EU. Some countries worry that this new policy may discourage the companies' consumer bases, and increase the appeal of non-Europe based companies. Right now, many tech companies deliberately base their headquarters in low-tax zones like Ireland and Luxembourg. The proposed tax will be charged annually, based on the tech companies' gross revenues, and stands at a projected rate of 3% across the EU.
The new policy shifts take place in light of the $1.5 trillion tax law Trump signed in 2017. Trump's bill seeks to punish profit-shifting with the imposition of a new minimum tax on US companies' overseas earnings. This tax law features international provisions that European leaders fear might violate the rules of the World Trade Organization. But the U.S. and the European Union cannot agree on how to make remediations. The political and economic moment is made even more tense by the backdrop of the White House's planned tariffs on steel and aluminum imports. Over 110 countries have agreed to review the international tax system in light of the fact that many parts have been rendered obsolete in recent years by the digital economy.
Steven Mnuchin, the American finance minister, has complained that the European digital gross tax on internet companies is unfair to American companies. Experts estimate that the new tax proposal by the European Union will likely affect Silicon Valley tech companies the most.
European regulators have long sought to increase regulations against technology companies on many issues, such as tax avoidance, mishandling private data and anti-competitive behavior. Tech companies have retaliated with complaints that they are being unfairly singled out by Brussels regulators. The regulators respond by highlighting their disapproval of tax evasion, not the companies themselves. Recently, Apple
The proposed new tax from the European Commission will likely apply to companies with annual global revenues of over $925 million, covering generated sales that exceed 50 million euros annually. Precise thresholds and rates are still undecided, with no guarantees that the plan will be put into action. Proposals still await approval by Parliament and bloc member states. Taxation will go according to the biggest markets with highest sales rates, regardless of where the activities in question that are being taxed actually took place. This policy of redistribution is controversial.
- https://www.nytimes.com/2018/03/19/us/politics/europe-digital-tax-trade.html?rref=collection%2Fsectioncollection%2Fbusiness&action=click&contentCollection=business®ion=rank&module=package&version=highlights&contentPlacement=12&pgtype=sectionfront
- http://fortune.com/2018/03/17/european-union-tech-company-tax-plan/
- https://www.ft.com/content/6d5f5ea8-2d29-11e8-9b4b-bc4b9f08f381