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Targeting Tech Giants, Europe Unveils Digital Tax Proposal

“But under today’s rules, those profits are not taxed,” Mr. Moscovici said. “The current legal vacuum is creating a substantial shortfall in the budgetary revenues of our member states.” It also creates an uneven playing field between digital and traditional businesses, he argued.

The European Commission, the European Union’s executive arm, says tech companies use the profit-shifting method to reduce their tax burdens. In documents obtained by The New York Times before Wednesday’s announcement, officials estimated that digital businesses in the bloc pay an average effective tax rate of just 9.5 percent, compared with 23.3 percent for traditional businesses.

Under the new proposals, a 3 percent tax would be levied on the sale of user data, targeted advertising and “interfaces that put together buyers and sellers.” Officials estimate the tax would generate at least 5 billion euros, or $6.15 billion, annually for European Union member states.

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Targeting Tech Giants, Europe Unveils Digital Tax Proposal
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Minimum thresholds, however, will mean that only large tech businesses will be subject to the tax, and companies will be able to deduct the payments from their corporate tax contributions to avoid double taxation.

The plans announced on Wednesday are not certain to be carried out, as they require the approval of the European Union’s member states, and there is considerable disagreement over how much change is needed.

Notably, while big countries like France and Germany have pushed for changes, at least two smaller members have objected, saying the system allows them to attract employers by offering tax advantages.

Ireland — which is in a dispute with the European Commission over its tax treatment for Apple — quickly voiced opposition to the new plans on Wednesday. Leo Varadkar, the country’s prime minister, said the measures were “ill judged.”

Still, policymakers both within and outside the European Union largely agree that changes are necessary to make global companies — whether digital or not — pay their fair share of tax.

The role that tech companies play in society has gotten particular attention in recent days, amid revelations that a political data firm with ties to President Trump’s 2016 campaign gained access to private information on tens of millions of Facebook users. Facebook is one of several companies that have been in the cross hairs of regulators in Europe over the mishandling of personal data, tax avoidance and antitrust violations.

Last year, the European Commission fined Google €2.4 billion for abusing its dominant market position, while companies like Apple, Amazon and Qualcomm have also been investigated or penalized. The dominance of Silicon Valley in the industry has, however, spurred criticism that European regulators are too harsh on American businesses, an allegation officials in Brussels strongly reject.

Follow Milan Schreuer on Twitter: @MilanSchreuer.

Ed O’Loughlin contributed reporting from Dublin.

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