European policymakers on Wednesday unveiled a proposal for a new tax on tech giants such as Facebook and Google, in a measure that could raise $6.2 billion through what advocates say would be a fairer way of taxing how the companies make their money.
The proposal would tap into digital titans’ revenues in countries where they have the bulk of their users and customers, imposing a 3 percent tax on income from online advertising, the sale of user data and the connecting of users to each other.
The initiative, which would face several rounds of approvals, comes amid a rapidly-heating trade conflict between Europe and the United States. Absent action by President Donald Trump, new U.S. tariffs on steel and aluminum imports are set to go into effect on Friday, and EU leaders have threatened countermeasures to follow shortly after.
It also comes as Facebook’s actions are under a microscope, following revelations that the Cambridge Analytica data firm misused the data of 50 million U.S. Facebook users to help Donald Trump win the presidency and that Russians also targeted U.S. voters on the social network.
The action by the executive arm of the 28-nation European Union would seek to impose common tax rules across the EU’s vast market of 500 million consumers.
But the measure is likely to run into skepticism from the countries that serve as the legal homes to the companies, as well as small tech-savvy nations such as Estonia, where the technology behind Skype was born. Any EU-wide tax measure would require unanimity.
The goal, advocates say, is fairness. In Europe, companies with digital business models pay an effective tax rate of 9.5 percent, compared to 23.2 percent for companies with traditional business models, the European Commission said.
“The digital revolution has overturned economies and it has profoundly affected the way businesses create value today,” said Pierre Moscovici, the top EU economy and tax official, as he announced the proposal in Brussels.
“Your click triggers a whole chain of commercial transactions and therefore generates substantial profits” that are not taxed by most countries, he said. “This legal loophole is no longer acceptable.”
European leaders are also concerned that the U.S. tax reform passed in December will divert tax revenues away from Europe and toward the United States. The tax law slashed corporate rates to 21 percent and offered incentives for companies such as Apple, which had accumulated billions of dollars in its European subsidiary in Ireland, to bring home their profits. Moscovici has said that the European measures are not connected to actions by any other government, but French leaders advocated similar national plans in reaction to the U.S. policy changes.
The proposed EU tax would only hit businesses with annual worldwide turnover above $923 billion that also make more than $62 billion of their revenue inside the European Union. That is being done to give small tech startups room to grow, European policymakers said. At least 120 global firms fit the criteria, Moscovici said.
Trump administration officials have raised sharp objections to the tax plan, which Moscovici outlined in a preliminary form at a meeting of finance ministers of the Group of 20 major world economies in Buenos Aires on Tuesday.
“The U.S. firmly opposes proposals by any country to single out digital companies,” Treasury Secretary Steven Mnuchin said in a statement last week that did not specifically mention the EU tax plans. “Some of these companies are among the greatest contributors to U.S. job creation and economic growth.”
Advocates of the measure said they are not targeting U.S. companies. But the U.S.-centered reality of the modern technology industry puts many U.S. companies in the crosshairs, however, and it could hit Amazon, Uber and others. The Washington Post is owned by Jeff Bezos, the founder and chief executive of Amazon.
The EU plan is intended as a temporary measure until a permanent plan is devised that would overhaul the taxation of the profits of digital companies. But because of the difficulty of reaching tax compromises, temporary measures have sometimes remained in place for decades.
(c) 2018, The Washington Post · Michael Birnbaum