Irish tax is back in the EU focus

EU states could have lost €5.4bn in tax revenues from Google and Facebook between 2013 and 2015, according to a report of the EU politician responsible for a corporate tax reform that could raise the tax bill for online mega companies.

The document, seen by Reuters, will be published later today, the day before EU finance ministers begin a two-day meeting in the Estonian capital Tallinn, in which they will discuss how to increase taxes on large online businesses accused of paying too little in Europe.

Digital multinationals “minimise the overall tax burden in the EU by routing all revenues to low-tax member states such as Ireland and Luxembourg,” said the report, prepared by socialist MEP Paul Tang.

The document focuses on the social network Facebook and search engine Google, now part of Alphabet, because the two US companies book most of their EU revenues in low tax-rate Ireland, a move that allows them to pay in the EU much lower taxes than those they face in the rest of the world.

It says Google pays taxes worth up to 9% of its revenues outside the EU, but this ratio goes down to no more than 0.82% inside the EU. “Facebook’s taxes as a share of their revenues recorded outside the EU is between 28% and 34%, whereas in the EU this is a remarkably low ratio of 0.03% to 0.10%,” the report says.

This resulted in estimated revenue losses for EU states, other than Ireland, of €51bn to €54bn between 2013 and 2015, the report concluded.

Tang is in charge of steering through the EU assembly a tax reform, known as common corporate tax base, which aims at harmonising national tax deductions on business profits.

He plans to introduce an amendment that would force online multinationals to pay taxes in the EU countries where they are present with a “digital platform” that generates at least €5m of annual turnover.

Existing rules require online companies to pay taxes only where they have a physical presence and a tax residence, regardless of where they generate profits.

Tang’s amendment is similar to a proposal made by the Estonian presidency of the EU, and that will be discussed by EU finance ministers this week.

If EU states decided to tax the revenues of digital companies, rather than their profits, as proposed by France with the backing of Germany, Italy and Spain, that could have generated €4bn in tax revenues from Google and Facebook between 2013 and 2015.