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France drives EU tax blitz on revenues of US tech giants

Corporation tax

France drives EU tax blitz on revenues of US tech giants

Changes would wreak havoc with many groups’ business models in Europe

Paris and Berlin are mounting a joint offensive to tax internet giants such as Google and Amazon based on revenues generated in EU countries, a change that would wreak havoc with many technology groups’ business models in Europe.

The initiative, launched by Bruno Le Maire, French finance minister, and set to be presented to all 28 EU finance ministers next week, would overhaul national tax codes to include an “equalisation tax” for tech companies that would collect levies based on national turnover. Brussels would propose an EU-wide plan to be approved by member states unanimously.

Currently, US technology groups such as Apple and Facebook are taxed in Europe based on profits rather than total revenues.

Many of these companies have angered European tax collectors and voters for years by using EU governments’ disparate tax codes to record profits in jurisdictions with the lowest effective rates, meaning that some companies have been able to pay little or no tax in countries where they have billions in sales.

Most recently, hackles were raised in Paris by reports that the online booking service Airbnb paid less than €100,000 tax in France last year.

According to an outline of the plan seen by the Financial Times, the finance ministers of Germany, Spain and Italy have joined Mr Le Maire in calling for an EU-wide regime.

Under EU treaties, tax measures require all members to back legal changes, meaning that Mr Le Maire would need support from low-tax countries like Ireland and Luxembourg for the initiative to become law.

We should no longer accept that these companies do business in Europe while paying minimal amounts of tax to our treasuries

“The amounts raised would aim to reflect some of what these companies should be paying in terms of corporate tax,” reads the outline signed by the four ministers. “We should no longer accept that these companies do business in Europe while paying minimal amounts of tax to our treasuries.”

A French government official said that a turnover tax, even levied at a low percentage, had the potential to deliver a tax take that was “orders of magnitude” higher than what European governments had managed to collect so far. It is envisaged that the tax could be set at somewhere between 2 and 5 per cent of turnover, the official said.

Taxing companies based on revenues rather than profits would be highly unusual for any developed country, though Britain last year reached agreement with Google to pay tax based on revenues from UK advertisers.

A French court struck down a similar effort by Paris to collect €1.1bn in back taxes, ruling that Google’s Ireland-based subsidiary was not taxable in France.

The initiative is part of a growing effort in Brussels to crack down on multinational tax avoidance, which has gained traction since the eurozone crisis as voters reacted angrily to higher individual taxes that were included in austerity programmes as some big companies continued to avoid bigger levies.

The drive has caused awkwardness for some EU officials, including Jean-Claude Juncker, the European Commission president, who was previously a long-serving prime minister of Luxembourg while the government actively sought to lure big US tech companies to the country through cut-rate corporate taxes.

The EU’s efforts have included a European Commission probe into Apple’s tax affairs in Ireland, which led to a €13bn back-tax bill imposed by Brussels. Advocates of Mr Le Maire’s plan have pointed to the total as an example of the kind of tax revenue that European tax collectors have been missing.

France has long been a leading advocate of more aggressive taxation of tech groups in the EU, but the new initiative is part of an effort by Emmanuel Macron, the French president, to push Paris’ policy priorities to the top of the European agenda, a move that has received tacit support from Berlin.

The French official said that the four countries would present the plans at a meeting of finance ministers in Tallinn on September 15-16.

They hope to win political support for the idea from EU leaders at a summit on digital issues in Estonia later this month, and for the commission to draw up proposals on how to implement the plan by the end of the year.

Mr Le Maire said in a speech last week that “internet giants are welcome in Europe but it’s not right they pay so little in taxes,” adding that new ideas needed to be explored to deliver fair taxation.

A spokeswoman for the European Commission said that Brussels welcomed the political momentum in national capitals to tackle the issue.

Brussels has been looking closely at the issue “for a number of years,” the spokeswoman said. “What’s important now is that we move forward with a common approach that can protect the single market.”

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