US Tech Giants’ Taxes in EU’s Crosshairs

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Four major EU countries are looking to get tough on certain large international companies’ tax practices. This could spell trouble for US companies like Apple and Google. The move comes amid President Donald Trump’s bold proposal to drastically cut the corporate tax to encourage US companies to remain in the country.

Currently, several international tech giants record their European profits in certain EU jurisdictions with very low corporate tax rates, where they have their headquarters, while conducting business in multiple EU countries. Bruno Le Maire, French Finance Minister under new centrist President Emmanuel Macron, has launched an initiative to tax companies in each EU country where they conduct business, based on their turnover (gross sales revenue). France has also managed to bring along an initially reluctant Germany, as well as Italy and Spain.

The push for an “equalization tax” comes after reports last month that home-sharing giant Airbnb paid less than $120,000 in French taxes last year, despite the fact that more than 10 million French people use the site.

This move could undermine the whole European business model for American tech giants such as the so-called GAFA companies (Google, Apple, Facebook, Amazon).

Some EU countries, such as Ireland, keep a very low corporate tax rate in order to attract international companies. In an ongoing dispute, the European Commission (The EU’s executive cabinet) demands that the government of Ireland recover $15.5 billion plus interest from the Ireland-based Apple subsidiary Apple Sales International, which was found to pay an effective corporate tax rate of only 0.005 percent in 2014. The European Commission found this to be illegal state aid.

The Irish corporate tax rate has angered governments and taxpayers, both within the EU and internationally. In a Forbes article from 2013, analyst Martin Sullivan asked, “If Ireland is not a tax haven, what is it?”

In another dispute, earlier this year a Paris court ruled that Google was not required to pay over $1.3 billion in taxes on revenues made through its AdWords service in France, as its headquarters, staff, and servers are located in Ireland.

The French-led tax offensive comes while President Trump is seeking to slash US corporate tax from its current top rate of 35 percent to a cap of 15 percent, in order to level the playing field for US companies and encourage them to keep their headquarters in the country. This would take the US from having the highest corporate tax rate among industrialized nations to one of the lowest. Ireland, by comparison, has a corporate tax rate of 12.5 percent.

The EU proposal, which will be presented at a meeting of EU finance ministers in Talinn, Estonia, on September 15-16 means that the companies’ digital presence, not just their physical presence, will be taken into account. Furthermore, the companies would be taxed on their turnover, not their profits, which is an unusual system in developed countries, according to a report by Financial Times, that also cited a French government official saying that the tax could be set at between 2 and 5 percent of the turnover.

In order for this proposal to eventually become law, all EU member countries, including the low-tax ones, must back it.