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E.U. proposes tax on tech giants such as Facebook and Google that could raise $6.2 billion

The European Commission has proposed rules to make digital companies pay their fair share of tax, with U.S. tech giants such as Google, Facebook and Amazon set to foot a large chunk of the bill. Matthew Larotonda reports. (Video: Reuters)

BRUSSELS — European policymakers announced a proposal Wednesday for a new tax on tech giants such as Google and Facebook, in a measure that could raise $6.2 billion through what advocates say would be a fairer way of taxing how the companies make money.

The proposal would shift tax revenue away from the low-tax nations where digital titans are often headquartered and instead tap into companies’ revenue in countries that have the bulk of their users and customers.

“The digital revolution has overturned economies and it has profoundly affected the way businesses create value today,” said Pierre Moscovici, the European Union’s top economic and tax official, as he announced the proposal in Brussels. 

“Your click triggers a whole chain of commercial transactions and therefore generates substantial profits” that most countries do not tax, he said. “This legal loophole is no longer acceptable.”

The initiative, which would need several rounds of approvals, comes amid a rapidly heating trade conflict between Europe and the United States. Absent action by President Trump, new U.S. tariffs on steel and aluminum imports are set to take effect Friday, and E.U. leaders have threatened countermeasures to follow shortly thereafter.

The move also comes as Facebook’s actions are under a microscope, following revelations that the Cambridge Analytica data firm misused information from 50 million U.S. Facebook users to help Donald Trump win the presidency and that Russians targeted U.S. voters on the social network. 

More broadly, E.U. regulators have been tougher on tech companies than their U.S. counterparts, forcing them to give users more control over their data, imposing antitrust fines and requiring them to police content.

The action by the executive arm of the 28-nation European Union would seek to impose common tax rules across the bloc’s vast market of 500 million consumers. 

But the measure is likely to face skepticism from the countries that serve as the legal homes to the firms, as well as small tech-savvy nations such as Estonia, where the technology behind Skype was born. Any E.U.-wide tax measure would require unanimity.

The proposal released Wednesday would impose a 3 percent tax on revenue generated from activities where users’ information helps firms make money. Google would face the levy for its targeted advertising, Facebook for its sales of user information and Amazon for the marketplace fees it charges one customer to sell to another.

The goal, advocates say, is fairness. In Europe, companies with digital business models pay an effective tax rate of 9.5 percent, compared to 23.2 percent for companies with traditional business models, the European Commission said. 

European leaders also are concerned that the U.S. tax legislation passed in December will divert tax revenue away from Europe and toward the United States. The tax law slashed corporate rates to 21 percent and offered incentives for companies such as Apple, which had accumulated billions of dollars in its European subsidiary in Ireland, to bring home their profits. Moscovici has said that the European measures are not connected to actions by any other government, but French leaders advocated similar national plans in reaction to the U.S. policy changes.

The proposed E.U. tax would hit only businesses with annual worldwide turnover above $923 billion that also make more than $62 billion of their revenue inside the European Union. That is being done to give small tech start-ups room to grow, European policymakers said. At least 120 global firms fit the criteria, Moscovici said.

Trump administration officials have raised sharp objections to the tax plan.

“The U.S. firmly opposes proposals by any country to single out digital companies,” Treasury Secretary Steven Mnuchin said in a statement last week that did not specifically mention the E.U. tax plans. “Some of these companies are among the greatest contributors to U.S. job creation and economic growth.”

Advocates of the measure said they are not targeting U.S. companies. But the U.S.-centered reality of the modern technology industry puts many U.S. companies in the crosshairs, and it could hit Amazon, Uber and others. The Washington Post is owned by Jeffrey P. Bezos, the founder and chief executive of Amazon. 

One prominent tech industry advocate said the E.U. effort was misguided.

“We agree with the fundamental thesis of the European Commission: Today’s tax systems do not reflect that today’s economy is digital,” said Dean Garfield, the president of the Information Technology Industry Council, a trade group that includes many U.S. tech giants. “Unfortunately, the E.U.’s digital tax proposal threatens to undermine the progress Europe is making in ensuring that its firms, workers and citizens can benefit from these technologies.”

The E.U. proposal is intended as a temporary measure until a permanent plan is devised that would overhaul the taxation of the profits of digital companies. But because of the difficulty of reaching tax compromises, temporary measures have sometimes remained in place for decades.

Quentin Ariès contributed to this report.

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