The European Union is preparing to propose stiffer taxes on digital companies if the rest of the developed world doesn’t overhaul the international tax system.
The European Commission, the EU’s executive wing, released a report on Thursday outlining its agenda to create a more equitable tax system. European officials are frustrated that Silicon Valley companies that do business on the continent get away with paying little in taxes because they often lack a physical presence there.
“The goal of this Commission has always been to ensure that companies pay their fair share of tax where they generate profits,” Pierre Moscovici, the EU’s tax chief, said in a statement. “Digital firms make vast profits from their millions of users, even if they do not have a physical presence in the EU."
According to the report, the effective average tax rate for digital firms in Europe is about half that of companies with traditional business models. At the same time, the top five digital commerce companies accounted for nearly a third of EU revenue growth from 2008 to 2016, while the entire EU retail sector made up just 1 percent.
The EU is urging other international bodies and prosperous nations, including the U.S., to raise taxes on digital firms in order to keep pace with the changing economy. Failing that, European authorities say they are willing to move forward with legislation to enact their own tax remedies.
“We now want to create a level playing field so that all companies active in the EU can compete fairly, irrespective of whether they are operating via the cloud or from brick and mortar premises," Moscovici said.