A new European Union legislation could give the bloc the ability to tax Big Tech companies including those with no physical presence inside its borders.
As most firms are US-based and operate across different continents, the “Business in Europe: Framework for Income Taxation” (BEFIT) proposed by the European Commission in 2023 and supported today by the European Parliament, seeks to make them pay European taxes and reduce tax avoidance.
The European Parliament has adopted its position on new EU legislation “aimed at curbing tax avoidance by large companies operating in the EU … which is a major step towards our longstanding demand to harmonise the corporate tax base across the EU”, said the Socialists and Democrats (S&D) in the EP after the plenary.
This position “carries a strong progressive imprint, strengthening measures against tax avoidance and ensuring that digital giants are scoped-in, even where they do not have a physical presence”, the S&D group wrote.
“Today, the Parliament sends a strong message to member states – it is time to ensure that all large companies – including digital giants – play by the same rules and pay their fair share, regardless of where they are based,” Jonás Fernández, an S&D MEP, said today.
Companies operating across borders must navigate each member state’s differing tax rules on depreciation, amortisation, loss deductibility and interest payments. This complexity consumes significant time and resources, creating hurdles for compliance, the European Commission says.
The BEFIT proposal is said to be an initiative to simplify this system. Each company in the EU within a large multinational group that exists beyond the EU would calculate its corporate income tax base using a common methodology based on the so-called OECD-G20 Pillar 2 rules, which set a minimum tax rate for all large multinationals, to prevent tax avoidance.
Evelyn Regner, S&D MEP and an EP rapporteur on BEFIT, said: “ If we want a true single market, we simply have no other choice. Our report calls for structure in a system that has evolved over decades but has never truly come together.
“Now the ball is in the [the EU] Council’s court. It is time for the member states to act.”
Member states generally support BEFIT’s objectives, although some questioned whether it will simplify taxation and discussed aligning the directive more closely with Pillar 2 rules, the EP reported. Member states are not discussing technical details of the proposal.
The EP’s economic committee recommended improvements, including rules for the digital economy. The committee also introduced the idea of “significant economic presence” based on OECD-G20 Pillar 1 rules, which make large companies pay tax where they earn their revenue, not just where they hide profits.
This would let countries tax large digital companies if they make substantial sales there, ensuring they contribute to EU tax revenues regardless of whether they had a local office or not.
Now, the EP is waiting for member states to decide their position at the Council of the EU, too.
Fernández, he S&D spokesperson on economic and monetary affairs, said: “Europe cannot afford to let unanimity stand in the way of a fair and modern tax system.”
