EU states propose 'turnover tax' to fight back against tech giants' corporation tax dodging

The ‘equalisation tax’ would sit on top of corporation tax

A turnover tax would likely make it more difficult for companies to cut their tax bills by declaring profits abroad instead of in the countries where their consumers are located (Rex)

Four EU countries are proposing a new tax on multinational corporations aimed at hitting major US tech giants, such as Apple, Amazon and Google, that have been accused of avoiding corporation tax.

A letter to the European Commission by the finance ministers of France, Germany, Spain and Italy says an “equalisation tax” paid on turnover instead of profits could recoup “some of what these companies should be paying in terms of corporate tax”.

Corporation tax is paid on profits rather than revenue and firms operating over the internet have been accused of cutting their tax bills dramatically by declaring profits abroad instead of in the countries where their consumers are located.

A turnover tax would likely be more difficult to avoid because it would be harder for companies to claim that their revenue came from elsewhere.

“Being able to appropriately tax the companies operating in the digital economy is a major challenge for the European Union,” the countries’ ministers said in the letter to the Commission.

“We should no longer accept that these companies do business in Europe while paying minimal amounts of tax to our treasuries. Economic efficiency is at stake, as well as tax fairness and sovereignty.

“We ask the EU Commission to explore EU law compatible options and propose any effective solutions based on the concept of establishing a so-called ‘equalisation tax’ on the turnover generated in Europe by the digital companies.

“The amounts raised would aim to reflect some of what these companies should be paying in terms of corporate tax.”

The ministers add that the “practical” proposal would “demonstrate our commitment to appropriately tax the companies of the digital economy in a way that reflects their genuine activity in the EU”.

EU-wide tax measures must be agreed unanimously following a proposal by the European Commission. Low-tax jurisdictions that benefit from the current arrangements such as Ireland and Luxembourg would also have to back the plan.

A European Commission spokesperson told reporters in Brussels that the EU institution would wait to see what specific proposal the countries came up with.

“I don’t really want to comment at this stage because we really would need to see how a tax like this would be constructed. There are lots and lots of different ideas that also our experts have been looking at, that other member states have been looking at in the past,” she said.

She added: “We’ll see what the options are, study those, and take those forward.”

VAT is similar to a turnover tax. Previous examples of turnover taxes include one in operation in the Soviet Union.