New European digital tax to ensure Amazon pays 'fair' share

New European digital tax to ensure Amazon pays 'fair' share

Amazon may be forced to pay a new tax proposed by the European Commission on EU operations of digital businesses.

The proposals for a new tax are intended to ensure that all companies pay their "fair" share in the European Union. Nicknamed the GAFA tax (after Google, Apple, Facebook and Amazon) in France, it's been designed to clamp down on more than 100 large tech companies, acknowledging that at present digital companies have an average effective tax rate half that of the traditional economy in the EU.

The European Commission on Wednesday (21st March) set out two different proposals for how this might be done. The first - described as the Commission's "preferred long-term solution" - concentrates on reforming corporate tax rules so that profits are registered and taxed "where businesses have significant interaction with users through digital channels", regardless of whether they have a physical bricks-and-mortar presence. 

A company would be deemed to have such a taxable "digital presence" where its annual digital revenues exceeded €7m (£6m), where it has more than 100,000 users in a European member state in a taxable year or where it has signed more then 3,000 business contracts for digital services in a year.

The second proposal looks at an option for an "interim tax", which, rather than taxing declared profits as is the status quo, would tax sales created from digital activities that currently escape tax rules. For example, this could include revenues from selling online advertising space, or user-generated content. 

Proposed as a measure until a longer-term solution is ready, it would tax companies with total annual worldwide revenues of €750m and EU revenues of €50m. If applied at a rate of 3%, it has been estimated that this measure would raise €5 billion in revenues a year for European treasuries.

There will be a consultation before either of the proposals are signed off on.