Some EU members want digital giants to pay tax on revenues
Many EU (European Union) members, led by France and including Italy, Germany, and Spain, want digital behemoths like Google (GOOGL) and Amazon (AMZN) to be taxed based on where they make their revenues, rather than where they book profits. According to the Financial Times, a French official may propose that the turnover tax could be set at somewhere between 2% and 5% of revenues.
The officials argue that the current arrangement allows these companies to reduce their tax liabilities by using subsidiaries located in low-tax economies. They allege that these companies minimize their tax liability, as they are currently taxed on profits that are booked by the companies’ subsidiaries, which are based in EU countries with lower tax, while the revenues are often generated in other EU countries.
Why France is leading the charge
Any change in the EU’s taxation rules will need to be agreed upon by all the EU members including countries with low tax rates like Ireland and Luxembourg. Thus, we could see barriers to tax reform.
France has the highest corporate tax rates in the continent, so companies like Amazon and Google avoid booking profit there. In 2015, the French Treasury booked only 6.7 million euros, or $8 million, in corporate tax from Alphabet’s (GOOG) Google. In 2016, Google signed a deal with the United Kingdom Treasury that it would pay tax on the ad revenue it makes in the region.
In August 2016, the EU ordered Apple (AAPL) to pay an eye-popping 13 billion euros, or $15.5 billion, in back taxes. The EU argued that the tech giant received illegal tax benefits from Ireland, a low-tax country.