A Brief Note — On-going Transatlantic Digital War

By IndraStra Global News Team

By IndraStra Global News Team

On March 21, 2018 (Wednesday), The European Union unveiled, proposals for a digital tax that targets U.S. based tech giants, including Google, Apple, Facebook, and Amazon with significant digital revenues in Europe, will pay a 3 percent tax of their turnover on various online services in the EU, generating an estimated $6.1 billion a year. These proposals are being considered as a part of series blows, heaping more problems on American companies, after revelations over misused data of 50 million Facebook users shocked the world.

Image Attribute: The File photo of European Commissioner for Competition Margrethe Vestager addresses a press conference on an antitrust case against US search engine Google at the European Commission in Brussels, on June 27, 2017. (EMMANUEL DUNAND / AFP)

Proposal 1: A common reform of the EU's corporate tax rules for digital activities

A digital platform will be deemed to have a taxable 'digital presence' or a virtual permanent establishment in a Member State if it fulfills one of the following criteria:

• It exceeds a threshold of €7 million in annual revenues in a Member State
• It has more than 100,000 users in a Member State in a taxable year
• Over 3000 business contracts for digital services are created between the company and business users in a taxable year.

Infographic Attribute: European Commission 

Proposal 2: An interim tax on certain revenue from digital activities

This interim tax ensures that those activities which are currently not effectively taxed would begin to generate immediate revenues for the EU Member States.

The tax will apply to revenues created from activities where users play a major role in value creation and which are the hardest to capture with current tax rules, such as those revenues:

• created by selling online advertising space
• created from digital intermediary activities which allow users to interact with other users and which can facilitate the sale of goods and services between them
• created from the sale of data generated from user-provided information.

Infographic Attribute: European Commission 

Google, Primary Target

In the last week of February 2018, Google competitors called for further action by European Union antitrust regulators to ensure the Alphabet-owned global search ginat treats rivals offering shopping services equally.

Google should be hit with further sanctions because last year's £2.1bn EU fine has done nothing to improve competition, the search giant's opponents have claimed.

"Google’s remedy proposal is, on its face, non-compliant with the prohibition decision," a group of 19 rivals said in a letter to European Competition Commissioner Margrethe Vestager. Google said it was complying with the EU order.

Currently, Google is facing two other separate cases. European Union Competition Commissioner Margrethe Vestager admitted her officials had "grave suspicions" about the firm, which has a 91.5 percent share of the search engine market in Europe. Also, as per the latest report, she reckons the threat to split Google into smaller companies must be kept open.

In the past, EU regulators had hit Microsoft with an 899 million euro ($1.1 billion)penalty in 2008 for not complying with 2004 ruling and another 561 million euro fine in 2013 for not complying with a 2009 decision..

Image Attribute: European Commissioner for Economic and Financial Affairs, Taxation, and Customs Pierre Moscovici addresses a press conference at the European Union in Brussels on March 21, 2018. (AFP)

Summarizing the "Digital Tax"

On March 21, The European Commission called for large technology companies to pay a 3% tax if they make money from user data or digital advertising in a country, regardless of their bricks-and-mortar presence.

EU economics affairs commissioner Pierre Moscovici presented his proposals in Brussels aimed at recovering billions of euros from mainly US multinationals that shift earnings around Europe to pay lower tax rates. 

"This current legal vacuum is creating a serious shortfall in the public revenue of our member states," France’s Moscovici told a press conference in Brussels. 

"We estimate this could generate at least €5 billion a year if the tax is imposed at 3%."

The commission rejected claims that the proposal was targeting only U.S. companies. "This is not an anti-American tax, this is not an anti-GAFA tax, this is a digital tax," said Pierre Moscovici,  who said 150 firms would be affected, including European, American and Asian ones. GAFA stands for Google, Apple, Facebook, and Amazon — all American, all tech giants

The European Commission estimates that digital businesses pay an average effective tax rate of just 9.5%, compared with the 23.3% that traditional businesses pay. These numbers are, however, disputed by the tech giants, which have criticised the tax as a "populist and flawed proposal".

Brussels is seeking to choke tax avoidance strategies used by the tech giants that, although legal, deprive EU governments of billions of euros in revenue. 

Under EU law, firms like Google and Facebook can choose to book their income in any member state, prompting them to pick low-tax nations like Ireland, the Netherlands or Luxembourg. 

As an example, Amazon operates across the bloc, but is headquartered in tiny Luxembourg, which has offered sweetheart tax deals that have allowed the firm to pay low effective taxes. 

With reporting by Economic Times, Reuters, Sydney Morning Herald, The Guardian, and The Strait Times.