The European Commission has proposed a plan to add a 3 percent tax on the revenues of digital tech companies like Google, Facebook, and Amazon in order to make sure that they pay “their fair share.”
The proposal is actually a two-part plan: the revenue tax is intended as an initial measure, with plans for more long-term reforms that would eventually tax digital companies based on where they make sales, not where their physical locations are.
The proposal notes that digital companies have become far more important in recent years: nine of the world’s top 20 companies by market cap are now digitally based, versus just one in 20 a decade ago. The proposal also claims that digital-based companies have an average effective tax rate roughly half of what more traditional companies pay since EU member states can’t tax digital companies’ sales in Europe when they have no physical presence there. It’s worth pointing out that this plan would only target larger companies; smaller startups with lower revenues wouldn’t be included.
The odds of the plan actually passing seem somewhat low. All EU member states would have to approve the proposal before it could become law, and it's not entirely clear if countries like Luxembourg or Ireland, which benefit by serving as tax havens for US companies, would want to see major tax reform that makes it harder for companies to hide their sales from taxation. But if nothing else, the proposal is indicative of the larger trend that we’ve been seeing in the tech world recently — that major technology companies need to be held more accountable. Even if this proposal doesn’t pass, it at least starts to put pressure on these companies going forward.