EU plans for a new tech tax are on life support. But Facebook and Google could still be on the hook for millions in payments.
France and Germany presented a compromise measure on Tuesday that would tax digital advertising sales at 3%, but spare other online services that had been targeted under an earlier proposal.
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"[The new version] would most likely impact Google and Facebook and other companies that have a large amount of advertising sales online," said Daniel Bunn, director of global projects at Tax Foundation.
The proposal is a narrower version of tax plans championed by the European Commission and supported by French President Emmanuel Macron. The original proposal called for a 3% tax on a broader range of digital activities, including the sale of consumer data and transactions made via online marketplaces.
Big Tech companies that make most of their money from online services other than advertising, such as Apple (AAPL) and Amazon, should fare better under the revised proposal.
The tax initiative is the latest in a series of European regulatory and legal efforts to target tech companies. The European Union has imposed tough new data privacy rules, and hit Silicon Valley firms with major antitrust fines.
Bunn said the new plan is controversial because it would tax revenue rather than profits.
"[The proposal] is trying to tax one part of the economy differently than other parts," he argued. "That is discriminatory."
A global effort
The Organisation for Economic Cooperation and Development is pushing for global standards among the richest economies of the world. But a final proposal is not expected until at least 2020, and even more time will be required for any changes to be implemented.
Europe doesn't want to wait that long, and has billed the current proposal as a temporary solution. All EU member states would need to sign off on the plan for it to become a new law.
French Finance Minister Bruno Le Maire said the compromise measure is not what he had been hoping for, but it's still a good option given Europe's past failures to agree on tax matters.
Ireland, which is home to the European headquarters of Apple, Facebook and Google, is among the skeptics. A spokesperson for Ireland's Finance Ministry said there were concerns about the compromise measure and that it would prefer a global solution.
The Information Technology Industry Council (ITI), a lobby group for the tech industry, said the process underway in Europe is "no way to deal with such an important and far-reaching issue."
"Rather than rush into an equally concerning approach — a tax focused on 'digital advertising' — we recommend the European Council oppose such a discriminatory measure and instead invest the EU's energies toward creating a multilateral solution through the OECD," it said in a statement.
The United Kingdom announced plans in October to tax the digital revenues of major tech companies. The 2% levy on sales of digital services would be implemented in April 2020, and apply to profitable companies with global revenues of at least £500 million ($640 million) a year.
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