Amazon, Google and Facebook could be made to pay a “fair” share of tax under new European Union proposals on digital companies that could heighten transatlantic tensions.
The European commission called for large technology companies to pay a 3% tax if they make money from user data or digital advertising in a country, regardless of their bricks-and-mortar presence. As well as social media companies making money through user data, the move would also catch online market places, such as Airbnb and Uber.
Tech giants have been rattled by the proposals, which are a departure from the current system under which companies are taxed on profits where they are headquartered, often in countries offering lower tax rates.
European leaders will discuss the plans at an EU summit on Thursday, opening a fractious debate about how to capture revenue from digital firms.
France has led the charge for a digital tax, sometimes nicknamed the Gafa tax, after Google, Apple, Facebook and Amazon. Smaller countries, such as Ireland, Luxembourg and Estonia, fear unilateral EU action could hand an advantage to the US, Japan, or even Brexit Britain.
The plans have been in the works for months, before regulators called on Facebook to explain a data breach affecting 50m profiles, or a transatlantic dispute about steel tariffs.
Theresa May is set to give cautious backing to the plans at the summit on Thursday. A senior Downing Street source said they recognised the international tax system was designed the best part of a century ago and was no longer suitable for a modern economy. “They are constructive proposals, we’re going to look at them seriously,” the source said.
Despite the long gestation, the digital tax is likely to raise tensions between Brussels and Donald Trump’s White House. The US Treasury secretary, Steven Mnuchin, told the New York Times that gross taxes on internet companies were “not fair”, on the sidelines of a debate among G20 finance ministers on taxation in Buenos Aires this week.
The commission rejected claims that the plan was targeting US companies. “This is not an anti-American tax, this is not an anti-Gafa tax, this is a digital tax,” said Pierre Moscovici, the European commissioner for tax, who said 150 firms would be affected, including European, American and Asian ones.
Moscovici said he had stressed this point to ministers at this week’s meeting in the Argentine capital, adding that the commission saw the plans as compatible with EU obligations under the World Trade Organization.
The commission believes the tax will generate €5bn for European treasuries each year, but Moscovici suggested this sum would rise over time.
The growing dominance of digital companies is seen as a long-term threat to Europe’s tax base, while also sparking questions of fairness. The commission estimates that digital businesses pay an effective average tax rate of only 9.5%, compared with 23.2% for bricks-and-mortar firms.
The proposals must be agreed unanimously by EU member states before they become law, so details may change.
The commission’s preferred option is reform of EU corporate tax rules that would include new ways to identify companies with a “digital presence”. A company would be deemed to have digital presence in a country if its revenues exceed €7m (£6m), or it has more than 100,000 users, or has signed more than 3,000 business contracts.
Pending this bigger reform, the commission is looking at interim measures, such as the 3% tax on revenues from digital activities, which would include selling online advertising space. The measure would only apply to companies with global revenues of €750m and €50m in the EU.
The commission hopes member states will agree the 3% tax by the end of the year, meaning it is likely the UK would have to apply it during a Brexit transition period mooted to end in 2021.
EU officials have said they want to prevent European companies being undercut by their neighbour across the channel after Brexit.
