UPDATE 1-EU proposes online turnover tax for big tech firms

* Proposed tax rate of 3 pct for online business

* For firms with global revenue over 750 mln euros, 50 mln
in EU

* EU countries split over issue, but their backing required

* Turnover tax an interim measure before tax based on profit
(Updates with proposal)

By Philip Blenkinsop

BRUSSELS, March 21 (Reuters) – The European Commission
proposed rules on Wednesday to make digital companies pay their
fair share of tax, with U.S. tech giants such as Google
, Facebook and Amazon set to foot a
large chunk of the bill.

Under the Commission’s plan, companies with significant
digital revenues in Europe will pay a 3 percent tax on their
turnover on various online services in the European Union,
bringing in an estimated 5 billion euros ($6.1 billion).

If backed by EU states and lawmakers, whose support is far
from certain, the tax would apply to large firms with annual
worldwide revenue above 750 million euros ($920.9 million)
annual “taxable” EU revenues above 50 million euros.

The tax, designed as a short-term measure before the EU
finds a way to tax profits based on where they do business,
could also encompass other high-profile U.S. firms such as
Airbnb and Uber.

It is designed to apply to activities in which users play a
role in value creation – whether via online advertising, such as
in search engines or social media, via online trading or in the
sale of data about users.

The legislation comes as the United States unsettles Europe
with its own tax reform and the threat of a trade war along with
reports that Facebook user data was accessed by a consultancy to
help President Donald Trump win the 2016 election.

EU antitrust authorities have also been busy investigating
the business practices of Amazon, Google and Apple, leading to
accusations, which the Commission denies, that it is targeting
Silicon Valley.


The Commission said that top digital firms, whose average
revenue growth of 14 percent far exceeded that of other
multinationals, faced an effective tax rate of 9.5 percent, less
than half the level of traditional companies.

The proposals require backing from the European Parliament
and the 28 EU countries, but they are divided on the issue. EU
tax reforms need the backing of all member states to become law.

Large EU states have accused the tech firms of paying too
little tax in the bloc by routing some of their profits to
low-tax member states such as Ireland and Luxembourg.

U.S. tech companies themselves have said they are paying tax
in line with national and international laws and, in some cases,
that the tax should be paid in the United States on profits
repatriated there.

The proposal is to tax companies according to where their
digital users are based.

A senior EU diplomatic predicted it would be hard to push
through the legislation, among the most important for the bloc,
because of deep divisions between larger countries set to gain
more tax income and smaller ones set to lose.

Smaller countries also fear becoming less attractive to
multinational firms.

Ireland has warned that the proposals risk merely re-slicing
the tax cake, rather than actually taxing more. Some countries
also believe that smaller companies should also face a bill.

Commission Vice President Valdis Dombrovskis said that the
EU would prefer globally agreed rules, but that the amount of
profits currently going untaxed was unacceptable.

The tax would to apply to online advertising sales, which
would bring in companies such as Google and Facebook, to
platforms offering services such as interaction with other users
or online sales and to those selling data generated from users.

The tax would be collected in countries where the users are

Tech industry groups have complained that it is wrong to tax
revenues as that would unduly hit companies, such as Amazon,
with thinner margins.
($1 = 0.8145 euros)
(Reporting by Philip Blenkinsop
Additional reporting by Alastair Macdonald
Editing by Alison Williams)

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