Mar 15, 2018

EU proposes new tax on U.S. tech companies' revenue

Photo: Emmanuel Dunand / AFP / Getty Images.

The European Commission will vote next week on a proposed 3% tax on digital revenues of large tech companies such as Google, Facebook and Amazon that do significant business abroad. Digital advertising and gig economy services would be within the scope of the tax, per a draft of the proposal obtained by Reuters.

Why now: EU states have criticized some U.S. tech firms for avoiding taxes there by housing profits in states with low tax rates, such as Ireland.

The bigger picture: The EU currently taxes profits of companies in countries where they are headquartered. The cross-border digital economy has left many countries wanting a new tax solution that takes into account the location of the companies' users, rather than the location of the companies' physical presence.

Tech's response: The proposal to tax companies' revenue (rather than profits) is getting a cool reception from U.S. firms.

  • Josh Kallmer, SVP of the Information Technology Industry Council, acknowledged there are legitimate concerns over cross-border tax regimes. But he said that broader, multi-lateral discussions are needed to arrive at a tenable solution.
  • The tech industry has asked Treasury Secretary Stephen Mnuchin to get involved in the talks.
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