The proposed changes to how digital businesses are taxed could substantially increase the amount such firms have to pay in taxes. The new regulations will reffer to impose taxes not linked to the place where companies are headquartered but to where they actually generate business. At this time, the digital businesses pay on average an effective tax rate of 9.5 percent, compared to 23.2 percent for traditional businesses.
According to the new proposed rules, companies like Amazon would be forced to record EU sales in each member country in operates in. In other words, a digital firm will be taxed more by the EU if its annual revenues in a European country exceeds a 7 million euro ($8.6 million) threshold and if it has more than 100,000 users in a taxable year or over 3,000 business contracts for digital services are created between the company and business users in a taxable year. Creating distortions in the European market by countries taking unilateral actions in some circumstances will not longer be permitted. An interim tax measure will apply. “It is not an anti-U.S. tax,” Pierre Moscovici, the EU’s commissioner for taxation said at a press conference on Wednesday. But he argued that the current rules are outdated.