GAFA: Europe’s Plan to Better Tax the Digital Giants

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Europ plans to tax the digital giants

Brussels is expected to propose on Tuesday a plan that plans to tax the revenue of digital giants (Google, Apple, Amazon or Facebook) up to 3%.

The European Commission must propose on Wednesday, under the impetus of Paris, to better tax system of the digital giants, such as Google or Facebook, at the risk of fuelling tensions between the United States and Europeans on the verge of a ‘steel war’

“It is no longer tolerable that these companies – regardless of their nationality – pay only a derisory amount of corporation tax in Europe,” in a common forum published Tuesday in the French daily Libération the French Minister of the Economy, Bruno Le Maire, and the European Commissioner for Economic Affairs, Pierre Moscovici.

Mr Moscovici will detail Wednesday the proposed reform.

Tax revenues, not profits

The taxation of digital giants, commonly referred to as GAFA (Google, Apple, Facebook, Amazon) , is on the menu Thursday evening of the European Summit of 28 Heads of State and Government of the EU in Brussels.

“This is a priority issue and it would be a particularly symbolic success if measures to tax Internet giants were adopted before the European elections” of May 2019, commented Monday a responsible to the Commission.

As a first step, the EU executive recommends taxing revenues (and not profits, as is customary) at 3% generated by the exploitation of digital activities, according to a source close to the Commission.

An idea already outlined in the electoral program of French President Emmanuel Macron who had promised to “impose major Internet groups on their turnover in France.”

This tax will only apply to groups with annual worldwide turnover of more than 750 million euros and whose revenues in the EU exceed “several tens of millions of euros”.

Clearly, small European start-ups that are already struggling to compete with the American behemoths will not be affected by this indirect tax.

A tax that could bring in 5 billion euros a year

In the eyes of the Commission: the advertising revenues of groups derived from the data of their users – the model of Facebook, Google or Twitter – or the income from the linking of Internet users for a given service – that of Airbnb or Uber for example.

In contrast, companies whose business model is based on subscriptions, such as Netflix, will not be affected, nor those who earn money through e-commerce, Amazon type.

In total, between 120 and 150 companies should be affected by this new tax : half will be American, a good third European and the rest Asian, mainly Chinese, says it to the Commission. This tax could bring in about 5 billion euros a year.

“This is by no means an anti-American measure,” Moscovici said in an interview with AFP on Monday.

United States standing up

Nevertheless, last Friday – even before Brussels unveiled its plans – US Treasury Secretary Steven Mnuchin warned Europeans: “The United States strongly opposes the proposals of any country whatsoever to target digital businesses “through special taxation.

In addition to this “targeted” measure of taxation of turnover of digital companies, Moscovici must propose Wednesday “a more structural approach” that will take over from this first proposal of “short term”.

It would be a matter of establishing a European standard defining the numerical presence of companies, to better impose them, using three criteria: the income, the number of users and the contracts – advertising for example – signed with another business.

For France, Germany, Italy, Spain and the United Kingdom, the five G20 members belonging to the EU, things are not going fast enough at the international level. They are pushing for a European solution first, to set an example for the rest of the world.

The unanimity required

It remains to be seen whether these large EU countries will succeed in convincing smaller states such as Ireland, the Netherlands and Luxembourg, known for their beneficial tax vis-à-vis companies. In the Union, any reform on taxation requires unanimity.

Ireland, which has managed to attract the European headquarters of Facebook thanks to its favourable tax rates, or Luxembourg, host country of Amazon, plead for them to favour an international solution, coordinated by the OECD .

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