BRUSSELS, March 21 (Xinhua) -- The European Commission on Wednesday proposed two legislative proposals that rewrite tax rules for Internet companies, most of which are based in the United States, as trade relations heightened across the Atlantic.
TAX VALUE CREATION
The first proposal is to tax value creation of the Internet business, departing from the existing framework of taxation in the country which headquarters the technology company.
The proposal would enable European Union (EU) member states to tax profits that are generated in their territories, even if a company does not have a physical presence there. The new rules would ensure that online businesses contribute to public finances at the same level as traditional "brick-and-mortar" companies, the Commission said.
The new rules will also change how profits are allocated to member states in a way which better reflects how companies can create value online: for example, depending on where the user is based at the time of consumption.
Currently Internet giants tend to base their headquarter in lower-tax countries such as Ireland or Luxembourg. For example, Amazon operates in the EU but is regionally headquartered in Luxembourg where it pays its taxes.
Ultimately, the Commission is trying to secure a real link between where digital profits are made and where they are taxed.
INTERIM TAX ON REVENUE
The other proposal is an interim tax on certain revenue from digital activities such as internet commerce and online advertising "which are currently not effectively taxed", the Commission said.
The interim tax seeks to close loopholes in existing rules, such as "activities where users play a major role in value creation and which are the hardest to capture with current tax rules".
Tax revenues would be collected by the member states where the users are located, changing from the status quo where one single headquarter country gets the tax.
An estimated 5 billion euros (6.17 billion U.S. dollars) in revenues a year could be generated for EU member states if the tax is applied at a rate of 3 percent, according to the Commission.
Start-ups will be exempted from the interim tax, as the proposal only targets companies with total annual worldwide revenues of 750 million euros and EU revenues of 50 million euros.
US TECH GIANTS TO FEEL HEAT
If the proposals become law, companies that will be hit the most are U.S. tech giants such as Google, Apple, Facebook and Amazon, known as Gafa.
In a February letter, groups representing these companies said digital taxes like this one would be "coupled with rising rhetoric targeting US companies and clear statements of intent to raise revenue from US-based firms."
European officials vehemently denied it was targeting the United States on Wednesday.
"This is not an anti-American tax, this is not an anti-Gafa tax, this is a digital tax," said Pierre Moscovici, the European commissioner for tax.
HEIGHTENED EU-U.S. TENSIONS
But the proposals did come despite clear objections from the U.S. officials.
"The U.S. firmly opposes proposals by any country to single out digital companies. Some of these companies are among the greatest contributors to U.S. job creation and economic growth," U.S. Treasury Secretary Steven Mnuchin said in a statement last week.
"Imposing new and redundant tax burdens would inhibit growth and ultimately harm workers and consumers," Mnuchin said.
But the Commission sees the proposals as to "ensure that all companies pay fair tax in the EU", as "digital companies currently have an average effective tax rate half that of the traditional economy in the EU."
The proposals also came as the EU batting the Unite States on another trade front -- a 25 percent tariff on imported steel and a 10-percent tariff on aluminum exports to the United States, set to kick off on March 23.
EU Commissioner for trade Cecilia Malmstrom and U.S. Secretary of Commerce Wilbur Ross released a joint statement on Wednesday that agrees to "launch immediately a process of discussion with President Trump and the Trump Administration on trade issues of common concern, including steel and aluminum, with a view to identifying mutually acceptable outcomes as rapidly as possible." (1 Euro=1.23 U.S. dollar)
