US tech giants such as Google, Facebook and Amazon are set to be hit with new taxes as part of a crackdown by the European Commission.
Under proposals tabled on Wednesday which aim to ensure digital firms are taxed in a “fair and growth-friendly way”, the Commission plans to impose a 3% levy on revenues of the biggest players.
The tax would apply to sales from digital activities which “escape the current tax framework” and will affect companies with total annual worldwide revenues of 750 million euro (£658 million) and EU revenues of 50 million euro (£44 million).
The Commission expects the change to generate an estimated 5 billion euro (£4.3 billion) for member states if the tax is applied.
In addition, the Commission has proposed that corporate tax rules be reformed so that profits are registered and taxed where businesses have “significant interaction with users through digital channels”, rather than in low tax jurisdictions.
This plank would relate to any country where a firm’s annual revenue exceeds 7 million euro (£6 million), or which has more than 100,000 users or over 3,000 digital service business contracts in a tax year.
Pierre Moscovici, commissioner for tax, said: “The digital economy is a major opportunity for Europe and Europe is a huge source of revenues for digital firms.
“But this win-win situation raises legal and fiscal concerns. Our pre-internet rules do not allow our member states to tax digital companies operating in Europe when they have little or no physical presence here.
“This represents an ever-bigger black hole for member states, because the tax base is being eroded. That’s why we’re bringing forward a new legal standard as well an interim tax for digital activities.”
The changes come at a sensitive time for US-EU relations, with the threat of an all-out trade war in the offing.
The EU’s competition commissioner Margrethe Vestager has previously put the tax affairs of a number of high-profile targets including Amazon and Google under the microscope, and in 2016 slapped US tech giant Apple with a 13 billion euro (£11.1 billion) tax bill.