New 3% web tax to hit technology giants

A new web tax that will hit the likes of Google and Facebook has been proposed by the European Commission (EC).

The EC’s first proposal targets a reform of the corporate tax rules in order that profits are registered and taxed where businesses have “significant digital presence”. The second proposal is an interim tax which covers the key digital activities that are not presently taxed in the EU.

The proposed 3% tax on turnover is expected to earn an estimated €5 billion.

The tax would only be applicable to certain online revenue streams such as online advertising, online selling, or the sale of collected user data, and for businesses with annual worldwide revenues above €750 million and EU revenues above €50 million.

With several countries having either implemented or suggested implementation of individual policies, such as Italy’s web service tax, the EC is looking to enforce a uniform digital tax structure across the EU which would be more practicable than a disjointed collection of digital taxes that could weaken the single market.

The UK has generated its own proposals on digital taxation. These are similar to the EC’s proposals in that both involve expanding taxing rights to encompass digital presence and an interim revenue tax. If successfully implemented, the EC’s proposed digital tax could overlap with Brexit. However, even if implementation occurs after the UK has left the EU; the likeness of the UK’s proposed digital tax could mean that the UK’s preference is to use the EC’s proposal rather than drafting its own.