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21st Jul 2018

Commission welcomes 'turnover tax' idea for tech companies

  • Apple, which has shops, may not be taxed like companies that only have online activities. (Photo: Jon Rawlinson)

The European Commission reacted positively to a proposal by four countries to tax internet giants' turnover, but said it raise some legal difficulties.

"We are very glad to see political interest in this issue," spokeswoman Vanessa Mock told journalists on Monday (11 September).

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"As for every business, digital giants should pay their fair share of tax in the countries where their profits are earned," she added.

In a recent letter leaked to the media over the weekend, finance ministers from France, Germany, Italy and Spain have asked the EU executive to design an "equalisation tax" to ensure that digital companies pay taxes where they make their revenues, and not where they register profits.

The target is the so-called Gafa - Google, Apple, Facebook and Amazon - as well as companies from the sharing economy sector such as Airbnb or Uber, which only pay taxes in countries with low tax rates, where they are registered.

"We trust this political momentum can he harnessed to drive forward our work to find solutions to the taxation of digital economy," Mock said. But she noted that "we need to see how a tax like this would be constructed."

"It is very important that we move forward with a common approach," she said, also insisting that "we have to maintain a level playing field" between companies.

"The main thing is to narrow the scope of taxation to make sure the proposal is compatible with the tax environment," she said.

One of the main obstacles to the proposed turnover tax is the different nature and activities of companies.

Apple, for example, is already subjected to taxes on its shops and sold products. Facebook, on the other hand, has no real-life activities.

"Whatever the ideas are, they have to fit with the existing legislation and work for all," an EU source noted, adding that the scheme could end up with double taxation for some companies.

The four countries' proposal will be discussed at a meeting of EU finance ministers in Tallinn on Saturday (16 September), as well as another proposal, made by the Estonian EU presidency, to tax profits "where the value is created" and not where they are registered.

"There is no difference in the philosophy" of the two proposals, a source from one of the four signatories countries told EUobserver.

"We want to fit into the existing legislative framework, in order to address the specific problem created by the Gafa," the source said, noting that "no one disputes the identification of the problem".

Sense of urgency

The official insisted that the four countries want a "system that works" and that taxing turnover seems to be "the most feasible option".

One of the main points of the proposal, the official stressed, is that it would create a level playing field for EU digital companies that already pay their taxes where they are based.

France, Germany, Italy and Spain would like a common EU approach on the issue "by the end of the year".

Coming up with a concrete proposal "could be quick", the EU source noted, as the commission has already looked at options in the past.

In recent years, media revelations on tax optimisation practices, as well as EU decisions that companies like Apple, Fiat or Starbucks had to repay taxes have also put the issue of the taxation of multinationals at the centre of public debate.

"There is a sense of urgency and a lot of appetite to move forward," the source noted.

But any decision would still have to be taken unanimously by the 28 member states, giving room for long discussions with countries which have so far benefited from their attractive tax policies.

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