US Technology firms face further taxation threat

It is commonly known that European countries want US technology giants like Google Amazon and Amazon to pay more taxes than they currently do. For years, these companies have used creative accounting and taken advantage of incentives offered by countries such as Ireland to structure their businesses in Europe, so that they pay minimal tax in the countries in which they operate.

To try to address this issue, the finance ministers of France, Germany, Italy and Spain have written a joint letter to the European Union presidency and Commission, calling for such technology giants to be taxed on the basis of their revenues, not just profits. They are proposing an “equalisation tax” of between 2% and 5% of revenue, to ensure such companies pay the equivalent of corporation tax in the countries where they earn revenue.

France, in particular, is incensed by how little tax revenue it receives, given the size of its population and the billions of dollars the tech companies earn in the country. With one of the highest corporate tax rates in Europe, the digital giants have looked to structure operations there to ensure profit is shifted to low tax jurisdictions. Google, for example, paid just €6.7m in French corporation tax in 2015.

French ire against Google was further stoked after they lost a 6 year legal battle to try to force the company to pay a massive €1.12 bn tax bill. Although Google has 700 employees in France, it has no permanent office there, so an administrative court in Paris ruled that, under existing rules, the company had no Permanent Establishment (PE) in the country. French advertising contracts are sold through Google Ireland, and according to the court, Google France did not have the people or technological ability to handle the advertising itself. Therefore, under existing PE regulations, Google’s activities in France were deemed auxillary in nature, and not an essential part of the company’s business.

Meanwhile, Apple and the EU are locked in a bitter battle over a €13 bn fine imposed on the technology group for what have been deemed illegal tax arrangements in Ireland, where the company has its European headquarters.

EU regulators claim that Apple have structured their operations in Ireland, so that they pay tax at an effective rate of only 1%, and that they have shifted profits away from other European countries, and, therefore, robbed local tax authorities of billions of euros of tax revenues.

Apple, for their part, feel that they have been unfairly singled out by the EU, and, as the largest taxpayer in the world, the argument is not so much about whether it pays tax, but where it pays that tax. They contend that because their products and services are “created, designed and engineered” in the US, that is where they pay the bulk of their tax.

Apple’s position is backed by the irish government who have argued that the EU’s action is an infringement of their national sovereignty; according to the country’s finance ministry, the European Commission have “misunderstood the facts and Irish law”.

The fact that Ireland are supporting Apple against the EU illustrates the major reason why it might be difficult to get the “equalisation tax” approved at a European level.

Such a proposal would need to be unanimously agreed by all member states, and this might be difficult to achieve since certain countries like Ireland and Luxembourg use low tax rates to attract international business.

Needless to say, the technology companies are implacably opposed to any equalisation tax, and will fight any such measures tooth and nail, as the potential additional tax they might have to pay for their European operations will be run to billions of euros. This battle could rumble on for years.


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