EU expects to receive 5 billion euros a year through tax tech giants

The European Commission has presented its proposals for taxing large tech companies. The EU will tax companies at a rate of 3%, generating an estimated €5 billion per year.

The three percent rate is temporary and will apply to income from certain digital activities. This concerns, for example, income from the sale of advertising space on the Internet, from the sale of user-generated data and from ‘activities through which users can contact each other or sell each other goods and services’.

Only tech companies of any size have to deal with it. For example, they must have an annual worldwide turnover of at least EUR 750 million and the income from European activities must be at least EUR 50 million per year. The measure is therefore aimed at major powers such as Amazon, Google and Facebook.

According to the European Commission, the activities that are taxed are difficult to overcome with existing tax rules. The Commission argues that users have played a major role in the revenues for the companies. The taxes are therefore collected by the Member States where the users are located. In time, the measure should make way for a more comprehensive reform of the European corporate tax for digital activities.

That reform should ensure that EU member states can tax profits generated on their territory by the tech companies. Once again, the EU is trying to spare smaller tech companies: the tax should only apply to companies that convert more than 7 million euros per year in a Member State and that have more than 100,000 users in that country. Only profits made from the use of user data, sharing economy platforms and other digital services, such as streaming, are taxed.

According to the European Commission, the largest tech companies are growing faster than multinationals in other sectors, but their average effective tax rate is half that of the traditional sector. Tech giants often use tricks to avoid tax and sometimes have no establishments in member states where they do have many users.