EU governments stand to collect some €5 billion a year from a temporary 3 percent tax aimed at tech giants operating across the bloc like Google and Facebook, according to the European Commission’s proposal unveiled on Wednesday.
The draft levy is designed to target the revenues that online firms generate to ensure that digital activities within the EU don’t escape the bloc’s tax net.
“The amount of profits currently going untaxed is unacceptable,” Commission Vice President Valdis Dombrovksis said in a statement. “We need to urgently bring our tax rules into the 21st century by putting in place a new comprehensive and future-proof solution.”
Currently, the average effective tax rate of digital companies is half that of traditional ones in the EU, the Commission said.
But a revenue levy would be a major shift from the world’s current policy on corporate tax, which is based on company profits.
The temporary digital tax would capture any company operating in the EU with annual global revenues of €750 million or more, as well as total taxable revenues of €50 million generated across the bloc.
The Commission also issued a second, longer-term initiative to update the bloc’s corporate tax rules for digital firms. The reform would ensure that company profits are “registered and taxed where businesses have significant interaction with users through digital channels,” the Commission said.
This approach would mean that countries can still tax a company even if it has no physical presence there.
This long-term fix would replace the temporary levy on revenue. But both would go into effect only if they are unanimously approved by EU governments.