Operations in the European Union haven’t been easy going for tech companies for quite a long time. While many European countries earlier called for strict privacy regulations and large fines on tech companies for violating them, they have now called for increased taxation for these companies for their operations in the European Union (EU).
Countries like France, Germany, Italy, and Spain are pushing for taxing tech companies according to their revenue and not their profits — as they are currently being taxed. The finance ministers of all four countries have called for higher taxation in a joint letter.
“We should no longer accept that these companies do business in Europe while paying minimal amounts of tax to our treasuries. The amounts raised would aim to reflect some of what these companies should be paying in terms of corporate tax,” the letter stated.
Tech companies currently low taxes in EU — large companies such as Apple, despite being based in U.S. actually use low-tax countries such as Ireland for diverting funds through their subsidiaries.
The proposed mechanism calls for an ‘equalization tax’ on company turnover which will actually bring the tax to an equal level of the corporate tax in the country where the tax was earned. It also calls for the concept of “permanent establishment” of a tax which will make it possible to tax companies where they create value rather than providing them tax havens where they have their tax residence.
The concept of a “permanent establishment” came up in July due to France’s calls for more taxation — a French court ruled in July that Alphabet Inc. owned Google was not liable to pay 1.1 billion euros ($1.3 billion) since there had been no permanent establishment in France for levying such taxes, since Google, like rival Apple, ran its operations in Ireland.
The issue will be discussed in a formal meeting in Tallinn, Estonia, on Sept. 15-16.
European countries have also been aiming to tax tech companies retrospectively but haven’t been able to provide provenance for justifying such levies in court.
The tax squeeze on tech companies might actually prevent them from diverting funds to tax havens and dodging taxes on technicalities — if these countries are able to impress the need for bigger taxes on the whole of EU, tech companies might need to pay billions in taxes.
Giving large companies such as Apple and Amazon — the most valuable companies in the world nearing trillion dollar valuations, a pass on taxes seems unfair to regular taxpayers.
EU has been recently tightening the noose around tech companies — the international union of 28 countries has enacted a new privacy law called the General Data Privacy Regulation which reflects upon the precedence of one ad over another on social networks such as Facebook. It has also called for anti-monopoly measures to break the hold of Google, Facebook, Amazon and others over certain segments of the tech industry.