The EU is pushing ahead with plans to rewrite tax rules for technology companies, aimed at increasing governments’ take from the likes of Google, Facebook and Amazon.
The European commission is looking at ways to capture tax from companies that may have no offices, shops or other physical presence in a country, but are accruing profits through large numbers of online users or customers.
A report published by the commission on Thursday said technology companies paid less than half the tax of bricks-and-mortar businesses.
A digital business with international operations typically pays a 10.1% tax rate in the EU, compared with a 23.2% rate levied on traditional companies, said the report.
In reality, many technology companies pay far less than their high street rivals. Amazon’s corporation tax bill in the UK is 11 times smaller than that of British bookstores, a recent study found. In Ireland, the European commission concluded that Apple paid 0.005% to Irish tax authorities in 2014, far below the corporation tax rate of 12.5%. Apple continues to fight the ruling.
The commission published the report to shed light on the gap, with momentum building for action after France seized the initiative with a proposal to tax technology companies on turnover, rather than a conventional corporation tax on profits.
The French plan has won support from 10 EU member states, including Germany, Italy and Spain, but commission policymakers are uneasy about departing from the convention of taxing profits. EU officials think taxing turnover may not work for all technology companies, although they are not ruling it out, especially as a stopgap measure.
“A tax on all untaxed or insufficiently taxed income generated from all internet-based business activities” is listed as a possible short-term option in the paper. As a long-term answer, the commission is looking at revising the rules on permanent establishment, so businesses could be taxed in countries even if they have no offices, warehouses or shops there.
Pierre Moscovici, the European commissioner in charge of tax policy, said the commission’s first choice was a common corporate tax base for companies. Aimed at introducing a common set of tax rules, but not rates, the CCTB is a longstanding tax harmonisation policy that has been blocked by hostile member states, including the UK, since 2007.
“It’s the commission’s preferred solution,” he said. “The digital presence of companies could be included to solve once and for all the question of digital taxation.”
Moscovici said all options were on the table and called on EU member states to find “a consensus on the most fair, efficient and permanent solution”.
The UK’s impending departure from the EU in 2019 could make it easier to agree common tax measures. However, Britain was never alone in its opposition, as Ireland also did not support the plans.
Although the UK has a say on the legislative proposals on the table, Moscovici pointedly excluded Britain in his statement.
“This is an issue on which we have to advance as 27 if we want to be effective,” he said. “At all costs, we must avoid creating digital havens on one side where taxation is more attractive, and administrative nightmares on the other for European companies that want to grow in the single market.”
Taxing tech companies is on the agenda of an EU leaders’ summit devoted to the digital economy in Tallinn on 29 September.
Before publishing legal proposals, the EU wants to see how far the rest of the world will go. Officials are awaiting a report in spring 2018 from the Organisation for Economic Co-operation and Development (OECD), the Paris-based body that is co-ordinating global efforts against tax avoidance. EU officials stress they are prepared to act alone. “The global answer is the best,” the European commission vice-president Valdis Dombrovskis said. “However, the EU must be prepared to act in the absence of global progress.”
Yet the French idea of taxing revenues seems unlikely to become the EU’s preferred option.
EU tax laws are agreed by unanimity and several countries, including Luxembourg, Estonia and Denmark, have already raised doubts. The OECD’s tax director, Pascal Saint-Amans, recently told the French parliament that taxes on revenue were “daft”.
But agreeing any new rules to capture more tax revenue from tech companies is fraught with complexity. Officials point to the fact that there is no typical digital company, and most companies use the internet to a greater or lesser degree.
