EU targets tech giants with new turnover tax plan

The fact that they've described it as flawed and populist could be taken by EU economics affairs Commissioner Pierre Moscovici as an endorsement

The EU is looking to increase the tax take from Silicon Valley's digital giants (Corbis)

Designed more than a century ago when companies were smaller and all had a physical presence, the corporate tax system was creaking long before the rise of the tech-tastic foursome of Google, Amazon, Facebook and Apple (GAFA).

Transnationals have for years hired clever accountants to minimise their liabilities for them, especially those incurred in higher tax territories. For the most part the authorities have turned a blind eye.

But the GAFA beast has taken it to such an extreme level - paying what amounts to a few coppers and a packet of Chewits on billions - they have had no choice but to act.

It’s not just a question of the much needed revenues national exchequers have been deprived of, and the understandable resentment caused among individual citizens when they compare the big stick they get hit with for making small mistakes on their tax returns against the champagne and canapes that greet corporate executives when negotiating tax deals.

The behaviour indulged in by the big four tech companies and a handful of others is profoundly anti competitive. It penalises businesses that seek to compete with them but lack the ability to shift their tax liabilities to wherever they're most favourable.

The EU is proposing to level the playing field by imposing a 3 per cent levy not on profits but on the revenues generated by various online services. Its plan has been designed with the aim of bringing the 9.5 per cent tax that digital firms pay on average closer to the 23.3 per cent traditional companies cough up.

EU economics affairs Commissioner Pierre Moscovici has been cute about it in that the plan won't just affect GAFA, thus countering accusations that he is singling out Silicon Valley for unfair treatment.

The fact that the latter has described it as “populist and flawed” could be taken by Mr Moscovici as an endorsement of his proposals.

The difficulty he faces is in getting the bloc’s members to similarly give it the thumbs up.

The UK is (for once) not the most likely source of problems given that it has been trying to find ways to increase its digital tax take. The fuss will be created instead by those that have offered sweetheart deals to the tech giants in the past.

While the UK is the European champion of beggar thy neighbour, as the conduct of its Government since the Brexit vote has made painfully obvious, it isn't alone in playing that game.