Tech companies such as Amazon and Google could be liable for increased taxes in European countries in the future. As it seems EU finance ministers are now preparing to reevaluate the current rules that dictate how liable companies are, and the relative rate of taxes owed by those companies, when operating in the EU. This information is based on a new report out of Reuters, which in turn references a ‘seen document’ detailing the ministers’ intent to “discuss rule changes next week” - over September 15-16 in Tallinn, Estonia.
It seems much of what the ministers intend to discuss stems back to the recent issues in attempting to hold Google accountable for more taxes in France. On that occasion, authorities were seeking as much as $1.3 billion in back taxes from Google. However, Google emerged from that case unscathed with a French court ruling that under current European law Google was not liable for the back taxes. Seemingly, as a result of that legal outcome (and the reason given for Google’s non-liability) ministers are discussing the possibility of changing the rules regarding ‘permanent establishment’ in Europe. While Google is being used at the case-in-point here, this is something that would apply to any company that has a permanent establishment in one place, but operates in other regions.
The suggestion being made here is that the understanding of permanent establishment could be changed to be more representative of where a company ‘creates value’ compared to where they are legally bound to pay tax. Essentially, tech companies could become liable for higher rates of tax in any country where they make a profit. While this may seem like a targeted attempt by the EU to generate additional revenue from companies such as Amazon, Apple, and Google, this is in actuality more intended to bring digital companies in line with the expectations already in place for the market as a whole. As in contrast to digital companies, other companies who have a physical presence in the EU (regardless of where they are based) are subject to the higher tax rates. Therefore, the proposal which will be discussed is designed to hold digital companies to the same level physical companies are currently held to. The sum of which will be to create a ‘digital permanent establishment’ to account for digital companies in the same way that permanent establishment rules do for psychical companies. According to the report, the EU will look to reach a consensus on these changes by December of this year, with a view to then encouraging a global change based on that reached common viewpoint.