EU-US spat tightens as digital tax proposal looms large over tech giants

In what could be the latest bone of contention between the United States and the EU, the latter’s executive unit today proposed the launch of a new tax for companies providing online services in its member countries. According to European Commission’s latest proposal, firms that have reported worldwide annual revenue of about $920.94 million will have to pay 3% tax on its turnover.

This is a temporary taxation proposed to be put in place till a proper system is set up. As a permanent system, EU currently plans to levy tax from tech companies based on their regions of operation, rather than the location of their headquarters.

This is especially harmful to companies like Amazon (AMZN) that are based in smaller member states such as Luxembourg, but have operations across the entire continent.  The Commission had ordered the e-commerce giant last year to make a tax payment of about $306.98 million for similar reasons.

The temporary taxation plan requires companies to pay tax on revenues from the sale of web advertising space or user-generated data, which spells trouble for Google (GOOGL) and Facebook (FB) as well. Other American giants with wide-spread operations in Europe, including Uber and Airbnb are also likely to get embroiled in this tax mess.

The proposal now needs to be passed by EU member countries and the European Parliament, which could turn out to be a major hurdle for the Commission given the split opinion on this issue. The proposal would mean a higher share for the bigger nations while losing a part of their pie for the smaller ones. Hence the smaller states are reluctant to join hands in this proposal.

EU currently plans to levy tax from tech companies based on their regions of operation, rather than the location of their headquarters

The issue comes at a time when the relationship between the US and EU are getting strained. Silicon Valley titans including Apple (AAPL), Google, Facebook, and Amazon are already under the scanner of European anti-trust agencies for the alleged monopoly of markets. While the US has criticized the Commission for specifically targeting American firms, EU has constantly denied this allegation. Anyways, the latest move is guaranteed to add heat to the on-going conflict.