US tech firms will no longer be able to choose the destination with the lowest tax rate for their European headquarters, if a widely expected European Commission proposal is approved. Beginning Wednesday, the European Commission has proposed new tax rules that would require US tech firms to pay taxes in the countries or regions where they generate value – not just where their headquarters are located, according to the Wall Street Journal.
Per Bloomberg, firms including Alphabet Inc., Twitter Inc. and Facebook Inc. could face a 3% tax on gross revenue gleaned from users in a given region.
EU officials have been ratcheting up the pressure on US tech giants over the past few years. Late last year, EU Competition Commissioner Margrethe Vestager slapped Amazon with a 250 million euro fine after ruling that Luxembourg, where Amazon’s European headquarters is based, failed to tax the company on three-quarters of its revenue, in accordance with state-aid rules. A year earlier, Vestager scored another victory, this time against Apple, by accusing Ireland of under-taxing the consumer electronics maker.
US Treasury Secretary Steven Mnuchin has warned European leaders that the US “firmly opposes” legislative proposals that target digital companies, though he didn’t specifically name the EU.
“Imposing new and redundant tax burdens would inhibit growth and ultimately harm workers and consumers,”Mnuchin said.
According to Wall Street Journal., officials had debated postponing the proposals so as not to appear like they were meant in retaliation. Officials clarified that the rules are meant to target all tech companies, though the provisions of the proposals suggest US tech firms are likely to be the worst hit.
EU tax chief Pierre Moscovici told reporters in Brussels on Wednesday that the proposed levy wasn’t aimed at the U.S. nor was it meant to target specific nations or companies.
“Digitalization brings countless benefits and opportunities. But it also requires adjustments to our traditional rules and systems,” said European Commission Vice President Valdis Dombrovskis, who leads financial-services policy work at the EU. “The amount of profits currently going untaxed is unacceptable.”
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