A European Union (EU) flag is reflected in a puddle outside the Chancellery building in Berlin, Germany. (Photographer: Krisztian Bocsi/Bloomberg)

EU Tech Tax Faces Tricky Path as Leaders Warn Facebook on Data

(Bloomberg) -- European Union leaders cast doubt over plans by the bloc’s executive arm to slap a 3 percent levy on the digital revenue of large technology companies, highlighting the challenges ahead in rallying support for such a tax.

The leaders, who gathered in Brussels for a two-day summit, discussed the European Commission’s proposal for a levy that would increase taxes these companies pay by about 5 billion euros ($6.2 billion) a year. The bloc is seeking to raise money from an industry it says provides less than it should to public coffers.

Large U.S. tech companies have warned that such a tax could harm global business while the U.S. Treasury voiced its opposition to proposals that single out the sector. Some EU countries, too, cautioned that such initiatives should be taken at a global level and that the move could further strain trans-Atlantic ties.

“There’s no point in Europe imposing a tax on itself that may only hand an advantage to countries that aren’t in the EU or that are leaving the EU,” Irish Prime Minister Leo Varadkar said before the summit, adding that the proposed rules target U.S. companies and would “no doubt result in a reaction from the U.S.” The tax should be dealt with at a more global level at the Group of 20 or the Organization for Economic Cooperation and Development, he said.

Interim Solution

The proposed levy represents an interim solution, according to the commission. Any skepticism, even by a small number of countries, could have significant implications since tax rules need the unanimous approval of all 28 EU countries before they can become law.

France, Germany, Spain and Italy strongly support the initiative, according to a French official, who acknowledged that it would be complicated, but not impossible, to get unanimous support. Some countries including the Netherlands didn’t support the intermediary nature of the proposal, according to the official, who asked not to be named because the talks are ongoing.

The tax would affect companies with global sales exceeding 750 million euros and total taxable annual revenue from digital services in the EU of more than 50 million euros. Digital firms in the bloc have an average effective tax rate of 9.5 percent, almost half that of traditional businesses, according to the commission.

The proposal comes amid renewed interest in technology companies, which are struggling to contain the fallout from a data security scandal that has raised the risk of a regulatory crackdown and sent their stocks plunging. At the summit, EU leaders warned Facebook that they take data security very seriously and that they expect it to respect national and European legislation. While no concrete action was taken, they promised to revisit the issue.

European Council President Donald Tusk said the leaders discussion confirmed their desire to work further for an effective and fair solution and said they would revisit the issue in June.

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