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European Union unveils new tax plans that could hit USA tech giants

European Union unveils new tax plans that could hit USA tech giants

Plans for an "interim tax" - intended as a temporary measure - unveiled today, would establish a way of taxing activities that are not now taxed.

Its implementation will be fiercely fought by the US commerce and treasury departments and the American companies - Facebook, Alphabet (owner of Google), Amazon and Twitter, among them - that dominate the digital commerce industry in Europe and around the world.

While Europe is trying to ignite its own tech startup economy, politicians here have grown increasingly furious at the influence of US tech companies, triggering anti-trust investigations, proposals for revenue sharing around content, new limits on digital platforms, and investigations into tax evasion schemes. The proposed tax is likely to have only a minimal impact as the company already posts revenues and pay taxes in Germany, France, Italy, Spain and Britain where it has dedicated country websites since 2015.

The proposal would also capture "platform" technologies that enable two users to interact commercially, such as AirBnB or parts of the Amazon offering that allows two customers to transact a sale between themselves.

These numbers are, however, disputed by the tech giants, which have debunked the tax as a "populist and flawed proposal". Regulators say so-called profit-shifting allows some businesses to use regional offices in low-tax countries to reduce payments.

It wants companies to pay a 3% tax on their turnover on online services in the EU.

This is meant to protect start ups and scaling businesses from the effects of the tax.

"Our proposal doesn't target any company or any country", he said.

So, online firms will be lined up to contribute "at the same level" as traditional bricks and mortar companies.

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The Commission's "interim tax" would affect any company operating in the European Union with annual global revenues of €750 million or more, as well as total taxable revenues of €50 million generated across the bloc.

- It exceeds a threshold of €7m in annual revenues in a member state.

The European Commission believes that this is unfair, and that the situation is so severe that a new tax is needed right now, levied on income from digital and data-related services to "generate immediate revenues for member states... to ensure a level playing for all businesses" until a bigger reform of the tax system can be agreed.

The proposal needs to be approved by all 28 European member states before it becomes law, but the commission's proposals were immediately welcomed by Europe's five biggest economies, known as the G5, on Wednesday.

On Friday the OECD, which is also working on ways to modernise the worldwide rules of corporate tax to take better account of digitalisation, said it does not recommend the introduction of interim measures by individual countries or groups of states.

U.S. Treasury Secretary Steven Mnuchin said last week that "The U.S. firmly opposes proposals by any country to single out digital companies".

It noted that nine of the world's top 20 companies by market capitalisation are now digital compared to one in 20 ten years ago.

Brussels argues that digital companies are growing faster than the economy as a whole, while corporate tax rules haven't kept up, meaning that some make significant profits in Europe yet pay very little tax.

The Commission's proposal also comes days after the Organization for Economic Cooperation and Development warned that countries failed to reach a consensus on how to tax digital businesses across borders.

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