EU Puts Forward Equalisation Levy Of 1%-5% On Tech Giants

The European Commission is planning to choose a levy on gross revenue to tax the digital giants with operation in Europe, according to a drafting document of the Commission. This proposal is similar to the equalisation levy proposal provided by France, and it is supposed to be published in the second half of this March.

Short Term Solution

Under the proposal draft, tax will be imposed on the turnover derived from the EU by digital enterprises at the rate between 1% to 5%, with the tax due being deductible as expense for corporate income tax purposes. Multinational groups with annual turnover above 750 million euros and revenue derived from digital activities in the EU are targeted by the proposal, but not companies in all industries are covered.

Advertising operators (like Google, Facebook, as the draft cited) and online transaction platforms (like Amazon, Uber, Airbnb) are covered by the proposal, while the online media, streaming services (like Netflix), online gaming, iCloud computing and IT services may be exempted from the levy.

In order to achieve effective and efficient administration, the addressee companies may be required to report to the tax authorities to compute their tax liability therein, and a user-based/ destination-based thought can be observed from the document: the tax should be levied “where the advertisement is displayed” and “where the users having supplied the data which is being sold are located.” The tax rate and threshold are not finalized yet and could be revised.

Long Term Resort

The equalisation levy is only a temporary measure, and a long term solution will be designed based on “digital permanent establishment” concept, which is in accordance with the outcome of public consultation on digital taxation and the Council proposal.

Sources: Reuters, The New York Times

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