A new proposal from the European Commission has revealed its plans to tax large digital companies based on where their users are located as opposed to where their headquarters are located.
The draft will tax large tech companies such as Amazon, Google and Facebook at a common rate between one and five percent to prevent them from re-routing profits made in the EU to countries with a lower tax rate such as Ireland.
If passed, the new tax will apply to companies with revenues over €750m worldwide and with digital revenues in the EU of at least € 10m annually. The proposal is expected to be published in the second half of March though it still subject to change before then.
Companies such as Facebook and Twitter which sell ad space online would be subject to the tax as well as those like Google that sell user-targeted ads. The proposal also indicates that digital marketplaces such as Amazon and gig economy firms like Uber and Airbnb would also be taxed. However, cloud computing and IT services, online gaming and streaming services would be exempt from the tax.
The new tax would reduce the appeal of countries with lower tax rates as the levy would be raised in the countries in which users are located and not where the businesses are headquartered.
The European Commission views the new tax as a temporary measure that will be used until a more complete solution for fair digital taxation can be implemented.
Though the Commission’s proposal is not yet complete, it will still require approval from all EU states before it can go into effect.
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