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A draft Commission document discloses that the European Commission intends to tax large digital companies’ revenues on the basis of where their users are located other than where they are headquartered, at a common rate between 1 and 5 percent. As per the proposal, reviewed by Reuters, it targets to increase the tax bill of giant firms namely  Amazon, Google, and Facebook that were alleged by large EU states of paying scanty by diverting their EU profits to low-tax countries namely Luxembourg and Ireland.

The plan mimics a French proposal on an equalization tax that was backed up by several big EU states. However, encountering opposition from small countries that fear of becoming unappealing to multinational firms is feasible.

As per the document the tax is applicable  to companies with revenues above 750 million euros ($922 million) worldwide and with EU digital revenues of at least 10 million euros a year.

However, the proposal is subject to changes prior to its publication anticipated in the second half of March. Some of the key figures on rates and thresholds are in brackets, showing that work is still in progress in order to define the final numbers.

Firms selling user-targeted online ads, such as Google, or providing advertisement space on the internet, such as Facebook, Twitter or Instagram, would be subject to the tax, the document said, citing these companies.

Digital marketplaces such as Amazon and gig economy giants such as Airbnb and Uber also fall under the scope of the draft proposal, the Commission said.

Online media, streaming services like Netflix, online gaming, cloud computing or IT services would instead be exempt from the tax.

The levy would be raised in the EU countries where users are located, rather than where companies are headquartered, reducing the appeal of smaller low-tax states.

“This would entail additional reporting requirements so that the tax authorities of member states can calculate how much tax is due in their jurisdiction,” the document said.

In the case of online advertisers, the tax should be levied “where the advertisement is displayed” and “where the users having supplied the data which is being sold are located.”

The document adds: “For online shopping, the tax would be collected in countries “where the user paying for being able to access the platform (or to conclude a transaction within the platform) is located.” The levy would be calculated on the “aggregated gross revenues” of a business and should have a single EU rate “in the region of 1-5 percent.” It would be possible to deduct this tax as a cost from national corporate taxes.

The tax would be a temporary measure that would be applied only until a more comprehensive solution to fair digital taxation is approved, the Commission said.

The long-term solution would entail the adoption of new rules on a “digital permanent establishment”.

The proposal, once finalised, would need the approval of all EU states.

Source: European Gaming Media and Events