Tech giants face higher taxes under new European Commission plans

Big technology companies like Facebook, Google and Amazon are facing an estimated $5bn increase in their tax-bill under new plans unveiled by the European Commission.

All firms with global annual revenues over €750m and taxable EU revenue greater than €50m would potentially fall under the purview of the proposed 3% increase in taxes.

The new measures from Brussels followed widely-aired complaints that such companies were not paying enough taxes in Europe.

Critically, the new legislation establishes that digital firms' tax liability will be determined by where it generates its sales from and not just the location of their physical presence or headquarters, potentially paving the way for a more level playing field between digital and more traditional companies and tax authorities in each jurisdiction.

Tech giants pay an average tax rate of 9.5% in the EU, while traditional companies have to pay double that at a 23.3% rate.

According to the European Commission’s plan, a digital platform will be subject to taxes if it generates over €7m in annual revenues from any member state of the EU, had over 100,000 users in a member state over the past year or has over 3,000 business contacts for digital services within a year.

Revenues from selling online advertising space and user data would also be taxed.

Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs said: "The digital economy is a major opportunity for Europe and Europe is a huge source of revenues for digital firms. But this win-win situation raises legal and fiscal concerns. Our pre-internet rules do not allow our member states to tax digital companies operating in Europe when they have little or no physical presence here.

"This represents an ever-bigger black hole for member states, because the tax base is being eroded. That's why we're bringing forward a new legal standard as well an interim tax for digital activities."

The proposal still needs to be approved by all 28 members of the EU with the first discussions on the measures expected to take place at 22-23 March summit of EU heads of state.