EU to Tax Tech Giants

aviationThe European Commission is going ahead with plans for a fair taxation regime on digital giants, aiming to balance the low tax regimes that cost EU governments billions of Euros in foregone revenues. The objective of the initiative is to define a fair, efficient and growth friendly approach to the taxation of digital economy.

The current regime is not attuned to the digital era. Rather, it was mainly designed for traditional economies and does not capture activities based on intangible assets and data. Digital firms nowadays are taxed mainly on profits declared in fiscal havens and low tax regimes. That has infuriated many EU Member States due to their inability to impose a more equitable taxation based on the companies revenues. The new plan is designed to force mainly major tech firms to start paying revenue tax in any country that their activities are taking place. Furthermore, in accordance to the OECD standards, some Member States have proposed an additional withholding and an equalization tax.

There are concerns on whether this is the right approach to solve this multi-billion puzzle. Amidst questions on the effects on competition, many believe that a targeted crack down on leading tech firms is doomed to fail. In addition, drawing analogies from corporate taxation regimes to the digital economy can impede growth and drive away digital giants. Regardless, all financial ministers have acknowledged the existing issue and have agreed to proceed together to the drafting of a new proposal. With increasing and vocal opposition, reaching a common understanding seems like an arduous effort and currently all options are open to debate.