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Facebook, Google and Amazon face digital tax blow in Europe

Online companies don't pay tax in European countries where they operate without a physical presence. But that could all be about to change.

The European flag is projected onto the town hall at the Grand Place in Brussels on January 31, 2018, during a light and sound show to mark the launch of the European year of cultural heritage 2018. /
Emmanuel Dunand / AFP/Getty Images

The EU unveiled a plan on Wednesday designed to get big US tech companies, including Google, Amazon and Facebook, to pay more tax in Europe.

Under current rules, digital companies only pay tax in countries where they have a physical presence, even if they're providing services in those countries and making money there. The European Commission wants to change this to make sure digital companies pay taxes everywhere they operate, just as traditional companies do.

The proposed rules specifically target bigger businesses with over 100,000 users in a country or over 7 million euros ($8.6 million) in annual revenues. They would affect a number of social media companies, as well as online marketplaces including Uber and Airbnb. Applying tax at a rate of 3 percent could generate an extra $5 billion per year for EU countries, the commission estimates.

Tax reform is the latest source of tension between the EU and Silicon Valley in an ongoing struggle between tech giants and European regulators. The Competition Commission previously fined Apple and Amazon for not paying enough tax in the region and last year issued Google with a 2.4 billion euro ($2.7 billion) fine for favoring its own shopping services.

"Digitalisation brings countless benefits and opportunities. But it also requires adjustments to our traditional rules and systems," said Valdis Dombrovskis, the commission's vice president for the Euro and Social Dialogue, in a statement. "We need to urgently bring our tax rules into the 21st century by putting in place a new comprehensive and future-proof solution."

The proposal needs to be approved by all 28 European member states before it becomes law, but the commission's proposals were immediately welcomed by Europe's five biggest economies, known as the G5, on Wednesday.

"Being able to appropriately tax the companies operating in the digital economy is a major global challenge," they said in a statement. "We now look forward to constructive discussions in the Council with a view to finding agreement as soon as possible."

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