German and French finance ministers have proposed that Silicon Valley giants like Google and Facebook pay tax in the countries where they earn revenue. Smaller countries are skeptical the new regulations will work.
Google and Facebook may soon face significantly higher tax bills, after Europe's big powers on Saturday put forward proposals on a new tax system they say is designed for the digital age.
During Saturday's EU finance minister summit in the Estonian capital of Tallinn, ministers from France and Germany urged bloc partners to consider an emergency tax bill that would force internet companies to pay tax in every country where they earn revenue, rather than where they book profits.
Current regulations allow internet firms to book profits just out of their EU headquarters, which are often based in low-tax states such as Ireland or Luxembourg. While firms such as Google, Facebook and Amazon boast billions of dollars in turnover, many of their European offices report little to no profit or sometimes even a loss.
'Question of fairness'
In the digital age "the current taxation system no longer applies and that is why we have to find another solution," said Estonia's finance minister, Toomas Toniste.
French Finance Minister, Bruno Le Maire, said the proposal was "a question of fairness," adding that the "giants of the digital world" cannot be allowed to generate revenue using European user data "without paying tax on it."
Le Maire indicated that about 10 of the EU's 28 member states back the idea, including Germany, Spain, and Italy.
However, that would not be enough to see the new tax proposals become law. Europe-wide tax reform requires the unanimity of all 28 states, which in the past has proven nearly impossible on tax issues.
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Countries including Denmark, Luxembourg, Malta, and Sweden expressed reluctance toward an emergency bill. Those countries would rather see Silicon Valley's mega profits and low tax bills addressed on the international level, such as through the G20 or OECD (Organization for Economic Cooperation and Development), a group of rich nations.
"I think we should be very careful not to tax on what we are going to live on in the future," Danish Finance Minister Kristian Jensen said. "I am... always skeptical by new taxes and I think Europe taxes heavily enough," he added.
While Sweden and Luxembourg's ministers said they weren't against the proposal in principle, they warned that introducing such a plan solely on a European level would likely drive online firms to set up shop in Asia.
The agreement is not expected at the summit, although it should serve as preparation ahead of the Tallinn Digital Summit, which will bring together EU heads of state and government on September 29.
Read more: Ireland insists Apple tax bill unjustified
Europe's digital regulators
The move reflects both the increasingly vocal public anger in Europe aimed at low tax-paying online behemoths and the European authorities push for more control over how the digital world operates.
In June, European antitrust officials fined search giant Google a record €2.4 billion ($2.7 billion) for unfairly favoring its own services in search results.
The EU's antitrust chief, Margrethe Vestager, has also demanded that Apple pay back some €13 billion in back taxes to Ireland.
Europe, and Vestager in particular, has looked to combat the near-monopolistic dominance of many Silicon Valley giants. Announcing Google's antitrust fine, she said: "We congratulate you for being successful. But the applause stops when you stop competing on the merits. You will never get a free pass to stop competing on the merits, neither in the market you dominate nor in other markets."
dm/kl (Reuters, AFP, dpa)