After Facebook (Nasdaq:FB) shares fell regarding the recent scandal where the data of almost 50 million of its users came into the possession of Cambridge Analytics, the European Union (EU) announced plans to apply a revenue tax to big-name digital companies, including Facebook.
According to the EU, nine of the current top 20 companies are digital, compared to one in 20 a decade ago. They believe that the “current tax rules were not designed to cater for those companies that are global, virtual or have little or no physical presence,” resulting in the new revenue tax proposal.
A 3% tax on revenue was proposed in order to gain more tax income from these companies. The European Commission (EC) and the EU have long believed that these bigger digital companies have been exploiting tax loopholes in low-tax countries.
A digital company that qualifies to be taxed must fall under certain criteria: It must make more than $1.2 billion in global revenue, more than $80 million in taxable revenue, and/or have over 100,000 users within an EU state.
The proposed tax will be applied to companies that earn revenue from advertising or selling user information, such as Google and Facebook, and revenue that is created by users interacting with each other, such as Uber and Airbnb.
It would allow EU member states to tax a digital company on the profits that are produced within their territory, whether or not the company has an actual presence there.
While the European Commission (EC) has said that the tax is not targeted to US companies, the fact remains that most of the major digital companies are from the US.
Later this week the US will be planning to announce tariffs that will be put onto all steel and aluminium imports, only excluding Canada and Mexico, which may increase tensions between the EU and the US.
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