EU to unveil digital tax targeting Facebook, Google

The unprecedented tech tax offensive by the EU comes on the heels of a bad-tempered trade row between Washington and Brussels. (Photo: AFP/Justin Tallis)

The special tax is the latest measure by the 28-nation European Union to rein in Silicon Valley giants and could further embitter the bad-tempered trade row pitting the EU against US President Donald Trump.

EU Economics Affairs Commissioner Pierre Moscovici will present proposals aimed at recovering billions of euros from mainly US multinationals that shift earnings around Europe to pay lower tax rates.

The transatlantic blow has been championed by French President Emmanuel Macron and will be discussed over dinner at an EU leaders summit on Thursday.

"This will be given top priority as tax file. There is a lot of political momentum on this issue," an EU official said ahead of the announcement.

The unprecedented tech tax follows major anti-trust decisions by the EU that have cost Apple and Google billions and also caught out Amazon.

The commission's tax, expected to be about 3 per cent of sales, would affect revenue from digital advertising, paid subscriptions and the selling of personal data.

EU agencies are also set to tighten rules on data privacy, targeting tech firms. That file has come to the forefront following revelations that a firm working for Trump's US presidential campaign harvested data on 50 million users of Facebook.

The EU tax plan will target mainly US companies with worldwide annual turnover above 750 million euros (US$924 million), such as Facebook, Google, Twitter, Airbnb and Uber.

Spared are smaller European start-ups that struggle to compete with them. Companies like Netflix, which depend on subscriptions, will also avoid the chop.

Brussels is seeking to choke tax-avoidance strategies used by the tech giants that, although legal, deprive EU governments of billions of euros in revenue.

"HOSTILE ACT"

Under EU law, firms like Google and Facebook can choose to book their income in any member state, prompting them to pick low-tax nations like Ireland, the Netherlands or Luxembourg.

As an example, Amazon operates across the bloc, but is headquartered in tiny Luxembourg, which has offered sweetheart tax deals that have allowed the firm low effective taxes.

The European Commission estimates that digital businesses pay an average effective tax rate of just 9.5 per cent, compared with the 23.3 per cent that traditional businesses pay.

These numbers are, however, disputed by the tech giants, which have debunked the tax as a "populist and flawed proposal".

"At the very least, the tax is prone to be interpreted by the US as a hostile act in the already begun trade war," wrote tax specialist Johannes Becker in a blog post tweeted by the Computer & Communications Industry Association.

Under the EU plan, revenue from the digital tax would be fairly distributed to where the companies actually operate, according to the level of activity in those countries and not the level of booked profit.

US Treasury Secretary Steven Mnuchin last week firmly warned Europe against jeopardising the major contribution tech firms make to US jobs and economic growth.

"The US firmly opposes proposals by any country to single out digital companies," Mnuchin said.

The EU's Moscovici sought to reassure that "these proposals are neither a response to a French request nor a response against the United States".

The EU has been on tenterhooks amid fears of a global trade war since Trump this month suddenly announced steep duties of 25 per cent on steel and 10 per cent on aluminium.

The EU's trade commissioner Cecilia Malmstroem is in Washington this week trying to get the bloc exempted. EU President Donald Tusk on Tuesday said the bloc's response would be "responsible and reasonable".