The European Commission is on the verge of kicking off a tax raid on Silicon Valley, unveiling a directive within weeks which would set the tax rate on tech companies between 2% and 6% of revenues.
French Economy Minister Bruno Le Maire told Journal du Dimanche the rumoured tax reforms are just around the corner, with the directive focusing on revenues derived from specific countries as opposed to profits. Taxing the likes of Facebook or Amazon has always been a complicated job but a draft document released a few weeks back looked to set the tone.
“A European directive will be unveiled in the coming weeks,” said Le Maire. “And it will mark a considerable step forward. The range is 2% and 6%, we (France) will be closer to two than six.”
In the initial 12-page draft document (initially uncovered by Politico) the Commission (hereafter known as the Gaggle of Red-tapers) sought to create interim and long-term rules which will stem the flow of money leaving the bloc. Of course this is all about tax and trying to figure out how the technology giants can contribute a bit more to the economies from which they are so handsomely profiting from.
“The starting point is the internationally accepted premise that taxation should take place where value is created,” the document reads. “Currently there is a mismatch between where taxation of the profit takes place and where value is created for certain digital activities.”
In short, the European citizens are providing the value for the internet giant’s spreadsheets, but these companies are taking advantage of tax havens around the world. There is of course nothing illegal about what the technology firms are actually doing, but you have to question whether it is ethically sound to bleed these economies of its cash while contributing very little back to the public service.
With Le Maire’s comments, there is seemingly confidence Europe will be able to reverse the on-going trends and hold the technology firms accountable.
This is of course not the first time the Gaggle has taken aim at Silicon Valley, and it is unlikely to go unnoticed by a political administration which is far more combative in its narrative than many before it. Europe has already punished many of the Silicon favourites with penalties for competition violations, it has waged war with Apple over its tax haven in Ireland and its pro-privacy stance is proving to be a thorn for both the internet giants and US intelligence agencies. Such a move could drive a wedge further between Europe and the US.
This is not a new story, but such a draft document is perhaps the most significant step forward thus far. The attack has a distinctly French-feel to it, and this is not the first time France has led the charge against the Silicon profit trail. French President Emmanuel Macron made strides forward last year, but felt resistance from some countries, Ireland being one of them, who profit considerably from alternative tax rules.
The Irish government might not be rolling in riches, but a favourable corporate tax environment has seemingly done wonders to reinvigorate the tech scene. Apple reportedly employs 5,000 people in the country, Dropbox has its European HQ in Dublin, Intel has a significant presence, Google uses the country to re-route taxes, as did Facebook until recently, while about a quarter of Synopsys’ employees worldwide are employed in Ireland. Why would Ireland want any change in the status quo? It certainly won’t be alone as Luxembourg is another who benefits from an alternative tax set-up, though Le Maire believes resistance is weakening in these countries.
While this has been a long-standing narrative for the Gaggle of Red-tapers this is not going to be an easy change to push through. Changes on this scale would have to voted-in unanimously and you can expect some pretty aggressive lobbying from the technology firms. These are some pretty big companies who have extensive legal teams.