MEPs have approved a new EU corporate tax plan which embraces "digital presence" when it comes to deciding what tax technology companies should pay. In other words, where technology companies make their money will be the overriding factor on how much tax they pay in each country, not where they choose to be taxed.
Up to now, the likes of Apple, Facebook, Amazon and Google have taken advantage of legally moving their pan-European profits to lower taxed countries like Ireland and Luxembourg. Apple, for instance, has benefited from lower taxes in both Ireland and Luxembourg, and Amazon also chooses to plough its cash generated from other countries through Luxembourg to shrink its tax bill.
The corporate income tax rate in Luxembourg is 18%, compared to Ireland's 12.5%. Before the European Parliament vote, the European Commission was already indicating it was ready to change things, to make technology companies pay more tax. The European Commission is reportedly planning a "tech tax", expected to be announced later this month, which will see specific companies taxed on their sales in each country, rather than their grouped profits declared in a lower tax country - closing legal tax avoidance schemes.
In an interview with French newspaper Le Journal du Dimanche earlier this month, French finance minister Bruno Le Maire confirmed a European directive will see major technology firms taxed at between 2% and 6% on their sales. At the same time, Reuters said it had seen a draft document [here] from the European Commission, which confirmed turnover-based tax plans on technology firms.
The Common Consolidated Corporate Tax Base (CCCTB) - part of a "wide-ranging proposal to create a single, clear and fair EU corporate tax regime" - was backed by MEPs on Thursday 15 March by 438 votes to 145 votes, with 69 abstentions.
The measure proposes benchmarks which would identify whether a firm has a "digital presence" within an EU member state, and is therefore liable for tax.
Parliament wants the EU Commission - which would be responsible for setting such a directive - to set those benchmarks, such as the number of users or the volume of digital content collected, to produce a clearer picture of where a company generates its profits.
"Personal data is a highly valuable asset mined by companies like Facebook, Amazon and Google to create their wealth, but it is currently not considered when calculating their tax liabilities," said the European Parliament.
Under the proposal, companies would calculate their tax bills by adding up the profits and losses of their constituent companies in all EU member states. The resulting tax would then be shared between member states depending on where the profits were generated. "The aim is to stamp out the current practice of firms moving their tax base to low-tax jurisdictions," the Parliament said.
Once the proposals take effect, a single set of tax rules would apply in all member states. Firms would no longer have to deal with 28 different sets of national rules, and would only be accountable to a single tax administration.
Rapporteur on CCCTB, Alain Lamassoure (MEP), said: "This is a fabulous opportunity to make a giant leap in the field of corporate taxation, not only would this legislation create a model that is more suitable to today's economies through the taxing of the digital economy, but it would also halt unfettered competition between corporate tax systems within the single market, by targeting profits where they are made."
The resolution will now be passed on to the European Council and European Commission for their consideration.
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