How EU proposes to tax FANGS…

The European Commission proposed new measures to ensure that all companies pay fair tax in the EU in March 2018. That was 6 months ago, and still we have no official statements from member states.

In their proposal the EU stated that digital businesses, have made a contribution to economic growth in the EU, but current tax rules were not designed to cater for those companies that are global, virtual or have little or no physical presence.

The change has been dramatic: 9 of the world’s top 20 companies by market capitalisation are now digital, compared to 1 in 20 ten years ago. 

They  want to ensure that digital companies also contribute their fair share of tax. Digital companies currently have an average effective tax rate half that of the traditional economy in the EU.

Today’s proposals come as Member States seek permanent and lasting solutions to ensure a fair share of tax revenues from online activities, as urgently called for by EU leaders in October 2017. 

Profits made through lucrative activities, such as selling user-generated data and content, are not captured by today’s tax rules. 

Member States are now starting to seek fast, unilateral solutions to tax digital activities, which creates a legal minefield and tax uncertainty for business. A coordinated approach is the only way to ensure that the digital economy is taxed in a fair, growth-friendly and sustainable way.

Two distinct legislative proposals proposed by the Commission today will lead to a fairer taxation of digital activities in the EU:

  1. The first initiative aims to reform corporate tax rules so that profits are registered and taxed where businesses have significant interaction with users through digital channels. This forms the Commission’s preferred long-term solution.
  2. The second proposal responds to calls from several Member States for an interim tax which covers the main digital activities that currently escape tax altogether in the EU.

This package sets out a coherent EU approach to a digital taxation system which supports the Digital Single Market and which will feed into international discussions aiming to fix the issue at the global level.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs added: “The digital economy is a major opportunity for Europe and Europe is a huge source of revenues for digital firms. But this win-win situation raises legal and fiscal concerns. Our pre-Internet rules do not allow our Member States to tax digital companies operating in Europe when they have little or no physical presence here. This represents an ever-bigger black hole for Member States, because the tax base is being eroded. That’s why we’re bringing forward a new legal standard as well an interim tax for digital activities.”

Last week, the EU Finance Ministers held a meeting on this subject in Berlin, what was attended by Finland’s Finance Minister Orpo.

The Finnish government’s only statement about the meeting was made on the Ministry of Finance’s website (see photo) where the Minister said that he discussed the following topics with German’s Finance Minister – the development of the Eurozone, the banking union, and taxation of the digital sector.

That is the only public statement from the Finnish government about one of the most radical tax proposals every made by the EU.

It appears that the Nordic countries do not want any interim tax solutions aimed at Tech Giants based on turnover in individual countries because that is a tax base that has never previously been used.

Given that these huge companies are a threat to our safety, to our free press and to our democracy, one would expect that such proposals would be treated with great ardour by our well-run Nordic countries. Sweden’s talk of protecting loss-making Spotify and Finland’s apparent concern about how taxes have always been collected are not solid arguments when faced with today’s real and current threats.

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