The executive arm of the European Union has just proposed a new ‘digital tax‘ that blindsides tech giants such as Apple, Amazon, and Google.
The proposal involves imposing a tax on the total revenue of technology companies operating in the EU and not on their profits. Since the tax is on the total revenue and not just the profit, this can be a sizable hit to their income streams.
The reason for this tax is to crack down on the many tax-avoidance schemes that tech giants have implemented to avoid paying their fair share.
Unusual EU Tax Laws Trouble Tech Giants
The new tax rule works by imposing a three percent cut on all digital services revenue. For example, if Facebook sold an advertisement to users in Brussels, then they would then have to pay the 3% tax to the Belgium government. Experts estimate that this could generate around €5 billion every year for the EU.
Financial Times
This new EU tax rule can be a big problem for tech giants who operate internationally. Though the tax is to be imposed in the EU only, several countries outside the EU are already saying that they would be willing to implement a similar tax rule until international regulations are setup.
In a statement, Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said
Our pre-Internet rules do not allow our Member States to tax digital companies operating in Europe when they have little or no physical presence here. This represents an ever-bigger black hole for Member States, because the tax base is being eroded. That's why we're bringing forward a new legal standard as well an interim tax for digital activities.
Not All EU Members In Favor Of New Tax Rules
Fortunately for tech companies, this tax still needs the unanimous approval of all 28 EU member states. A single vote against it would block the tax rule for being implemented. There are already some governments objecting to the tax. They say that the new tax will push customers to use software that is not covered by EU regulations. One of the most vocal critics is Ireland, which argues that such tax issues should be handled at a global level and not at a regional one.
Tech Giants need not worry too soon as it will take more than a few months for these tax laws to be approved and come into effect.
