March 7, 2018 / 6:08 PM / 17 days ago

EU tells tech firms it wants to tax profit, not revenue

BRUSSELS, March 7 (Reuters) - The European Commission told top digital firms on Wednesday that its favourite choice to reform online taxation would be a new method to tax profits rather than revenues, a move the industry welcomed.

The European Union is working on a tax overhaul aimed at increasing the bill of large companies like Amazon, Google and Facebook. The big EU states say they pay too little by re-routing their EU profits to low-tax countries such as Luxembourg and Ireland.

A preliminary draft of the proposal, seen by Reuters, said a structural solution would involve taxing corporate digital profits in the countries where they are made. They are now taxed where companies are headquartered.

However, those changes would probably take lot of time to be negotiated. So the Commission also put forward in the draft a temporary solution: taxing corporate revenue, regardless of whether a company makes profits.

As the drafting of the proposal reaches its final stage before publication, expected on March 21, the Commission held a meeting in Brussels on Wednesday with representatives of tech companies, including Amazon, Google and Facebook.

Companies said they preferred a solution based on taxing profits, which would shield start-ups, a Commission official said after the meeting.

“Both these points are in line with the Commission’s own approach,” the official added.

“There was a good and constructive exchange of views that provided useful input for the way forward,” a commission spokeswoman said.

Although no option has been ruled out so far, the Commission signalled that it was listening to companies and that initial drafts could be substantially changed.

The proposal to tax revenues is opposed mostly by companies that work on small margins and that usually pay little or no tax because their profits are low. The e-commerce giant Amazon could be one of the companies to be most hit by such a move.

Some American companies could, however, offset any additional tax paid to EU states against their U.S. tax bills.

Since U.S. tax reforms will force them to pay at least a global rate of 10.5 percent on their overseas income, multinationals could shift their tax liabilities to the EU insofar as bills are below that rate.

The initial draft said a temporary tax might be 1 to 5 percent of gross digital revenues. It would be applied to companies with revenues above 750 million euros ($922 million) worldwide and with EU digital revenues of at least 10 million euros a year.

Additional reporting by Tom Bergin, editing by Larry King

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