For Silicon Valley’s tech giants, EU countries are becoming increasingly brazen. Digital taxes are the best weapon of restraint, first with France’s single-mindedness, then Italy’s courage, and then the UK, the Czech Republic and other countries eager to try, digital tax in the European Union seems to be on the move. Of course, because the tech giants targeted are mostly from the United States, the United States will not be willing to rest, do not know when the next round of trade war between the United States and Europe will break out.
600 million euros in taxes
As the new year arrives, the tech giants have suffered another blow in the European Union. Italy’s new tax code, adopted in late December 2019, will begin on January 1, 2020, the italian digital tax on large technology companies with annual global revenues of more than 750 million euros and digital services in Italy with revenues of more than 5.5 million euros, amounting to 3% of the company’s turnover. This is similar to the digital tax rate previously implemented in France.
But not all technology companies need to pay the new tax to Italy. Italy’s digital tax is understood to affect only B2B transactions (such as advertising) and services (such as cloud computing) between businesses, with companies such as Amazon, Google and Facebook naturally included in the tax list, but digital content streaming services such as Netflix and Spotify are not included.
According to previous estimates by the Italian media, the digital tax is expected to bring italy 600 million euros a year in taxes. The fiscal deficit has been one of the government’s biggest headaches, and last September a joint meeting of Italian cabinet ministers, after intense debate, finally reached a consensus on the annual national budget: a budget deficit target of 2.4 per cent for the next three years, which exceeds EU-mandated budget deficit standards for member states.
France, which first proposed a digital service tax, has long known the dividends behind the tax. As early as last July, both houses of the French parliament passed the tax bill. Companies with annual operating income of more than 750 million euros and annual operating income of more than 25 million euros in France will pay a digital tax of 3%. In 2019, the tax will bring in 400 million euros for France, and by 2020 it will be 650 million euros.
In terms of digital networks, the gap between the U.S. and Europe is relatively large, the European Union’s internal Internet market, digital economy is relatively small, and the U.S. Internet companies in Europe really developed very well. So it’s normal for European countries to want to tighten regulation, and taxes are one way.
Countries smell the wind and move
France and Italy, two of the EU’s four largest economies, are just the pioneers of digital taxes. Within the EU, there are other countries that are looming over the issue of a digital tax. Unlike italy and France, where the 3 per cent tax rate is different, Turkey has a lion’s heart, with a 7.5 per cent digital services tax coming into force on March 1 this year, for companies engaged in online advertising, digital content sales and online activities, including platforms. Similar to Italy and France, the tax applies to companies with global revenues of more than 750 million euros.
Britain, which is struggling with the EU, is also on the digital tax side. After Turkey, the UK plans to introduce a digital services tax in April, but has stayed on the bandurate, at just 2 per cent, to companies with at least half a billion pounds a year in the world and at least 25 million pounds in the UK. By 2022, the tax is expected to generate an annual income of 400 million pounds for the UK.
In addition, Austria, Belgium, the Czech Republic, Denmark, Hungary, Poland and other countries have also given hints. In fact, as early as March 2018, the European Commission proposed a 3% digital tax on large internet companies. Under the proposed legislation, any EU member state could tax the profits generated by Internet operations in its territory. But the inability of member states to agree on how to define the “digital services” in technology companies’ revenues, coupled with objections from some member states such as Ireland and Finland, ended up in the dead.
Although the EU has not given the green light, most EU countries are still angry that, in their eyes, the us tech giants have drilled too much space. According to the European Commission, companies in traditional industries in the EU pay an effective tax rate of 23 per cent, compared with an average of 9.5 per cent for large technology companies. Amazon, for example, tripled revenues from the previous year to ?.98bn in 2017, while corporate tax payments fell to ?4.56m from ?7.4m in 2016.
Sandwich avoidance is one of the most common tax avoidance methods, bloomberg reported as early as 2018, google parent Alphabet used the so-called “double Irish” and “Dutch sandwich” structures to shift revenue from an Irish subsidiary to a Dutch company with no employees. It was then transferred to a Bermuda mailbox owned by another Irish registered company, thus avoiding taxes for most of its international profits.
As a tax haven in Europe, Ireland and Luxembourg are the main force in opposing the digital tax, which is the competitiveness of attracting businesses. It is reported that Ireland’s 12.5% corporate tax rate in Europe is the lowest, once the EU collective introduction of digital tax, will undoubtedly greatly reduce their competitiveness.
Within the EU, the dissenting countries, such as Ireland and Luxembourg, are, after all, a minority, and a growing number of dissenters, as france and Italy do. “It’s a battle between the United States and European countries, ” says DeFro, an expert on business taxes at Oxford University.
The EU is aggressive, and the United States will not be willing to rest. With the first bird of the gun, France has long been the eye of the United States. On December 2nd the US Trade Office (USTR) issued a statement saying it had completed a “301 investigation” into France, finding that the French digital tax discriminated against US companies and specifically discriminated against four US companies, Google, Apple, Facebook and Amazon.
In return, the USTR also proposed that the US government impose tariffs of up to 100 per cent on 63 French exports worth $2.4 billion, including representative French products such as cheese, wine and cosmetics. Italy and Turkey have also fled, and the USTR warned in early December that it was considering an investigation into the digital services tax in Austria, Italy and Turkey.
The problem is long gone beyond the contradictions between the United States and individual countries. Media have said Italy’s digital tax could exacerbate trade tensions on both sides of the Atlantic. In view of the increasingly acute economic and trade conflicts between the United States and Europe in recent years, the two sides are deeply divided on issues such as aviation subsidies, automobile tariffs and World Trade Organization reform.
“Economic and trade frictions between the U.S. and Europe are indeed on the rise, ” he also acknowledged. On the one hand, Mr. Trump has taken a tougher line on tariffs under protectionist policies, and on the other, EU countries believe that Mr. Trump should not do so against allies, and that the EU, when integrated, is better able to defend its interests.
However, Ziemo, a professor of business administration at the University of Louis in Rome, said the priority was to unify the positions of EU countries on the issue, and that if the EU could not take a unified position on the “digital tax”, it would show that EU countries were not prepared to deal with the challenges that followed.