EU tax plan for online giants

The European Commission said it may seek to implement tax reform to raise more revenue from online giants without the backing of the US and other rich nations, in a move that could spark a new transatlantic dispute.

The EU is frustrated at how long it is taking the world’s rich nations to reach a deal on how to tax online firms like Google fairly.

These companies on average pay bills in Europe that are less than half of those of other firms.

To prevent some smaller EU economies such as Ireland or Luxembourg, which host many foreign online businesses, from blocking the move, the commission is also raising the prospect of using little-known EU rules that would prevent states from vetoing decisions on tax matters.

Usually the EU decides on tax issues only with the unanimous support of its 28 members.

The commission outlined three options for taxes aimed at internet companies that could be agreed upon relatively quickly at the EU level or by a smaller group of EU nations.

One was for a tax on the turnover rather than the profits of digital firms, another would put a levy on online ads, and a third would impose a withholding tax on payments to internet firms.

In the longer term, the EU wants to change existing taxation rights to make sure digital firms with large operations but no physical presence in a given country pay taxes there instead of being allowed to reroute their profits to low-tax jurisdictions.

The EU’s preferred option would be for an agreement on this at the Organisation for Economic Co-operation and Development, which includes the US and Japan.

But “the EU must prepare to act in the absence of adequate global progress,” commission vice president Valdis Dombrovskis said in Brussels, adding that a legislative proposal may come next spring.

Such a move is likely to upset Washington and other rich nations that are home to many global tech giants.

In a document setting out the distortions created by the low taxes paid by digital businesses, the commission cited several US firms such as Amazon, Facebook, Netflix, and Airbnb.

The EU will first have to reach a compromise agreement among its 28 members by December.

Some states have already voiced their opposition to new taxes on digital firms, especially if decided on without a global deal in place.

Reuters