UPDATE 2-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
(Adds Moscovici, EU diplomat, ITI, ACCA comments)

By Philip Blenkinsop

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

However, many EU leaders, who will debate the issue of how
to claw taxes from the elusive new digital economy at a Brussels
summit on Thursday, oppose the executive’s proposals. Despite
support from big powers Germany and, especially, France, that
risks making it very hard to turn the idea into European law.

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).

EU Economics Commissioner Pierre Moscovici brushed off
accusations that he was going after rich American tech companies
to enrich EU coffers at a time when the bloc is at odds with the
Trump administration over trade and taxation issues.

“This is neither a GAFA (Google, Apple, Facebook and Amazon)
attack nor an anti-U.S. attack proposal that will target any
company or any country,” he told a news conference.

The tax would apply to large firms with annual worldwide
revenue above 750 million euros ($920 million) and annual
“taxable” EU revenues above 50 million euros.

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.

While some smaller EU states such as Ireland and Luxembourg
fear the proposed tax would undermine their ability to attract
multinationals to base themselves in their jurisdictions, others
see the measure as more likely to shift taxes toward bigger
countries in the bloc rather than raising more revenue in Europe

Irish Prime Minister Leo Varadkar called the measure “ill
judged” and urged Brussels to wait and take its lead from global
proposals planned by the OECD group of industrial states.

The tax, designed as a short-term measure before the EU
finds a more comprehensive 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 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,
where there is considerable support. But tax reforms also need
the backing of all 28 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.

EU diplomats 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.

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 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. Some companies
however could feel less pain than others.

Amazon declined to comment. The proposed tax is likely to
have only a minimal impact as the company already posts revenues
and pay taxes in Germany, France, Italy, Spain and Britain where
it has dedicated country websites since 2015.

Facebook, which also declined comment, changed its
accounting last year to record local advertising revenues in the
countries where it is present instead of its Dublin base.

The Information Technology Industry Council, whose members
include Amazon, Google, Facebook, eBay and Dropbox
, warned that the EU plan may drive away investments and
harm global trade.

The Association of Chartered Accountants (ACCA) was
similarly sceptical that it would be temporary.

“Over the years many ‘temporary’ or transitional tax
measures have in fact become embedded into the economy, and
negotiating changes to that status quo are far more troublesome
than it would have been to implement a better solution from
scratch,” Chas Roy-Chowdhury, ACCA’s head of Taxation, said.

($1 = 0.8145 euros)
(Reporting by Philip Blenkinsop;
Additional reporting by Alastair Macdonald and Samantha Koester;
Editing by Alison Williams and Adrian Croft)

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