By Francesco Guarascio
BRUSSELS (Reuters) – European Union states could have lost 5.4 billion euros in tax revenues from Google and Facebook between 2013 and 2015, according to a report of the EU lawmaker responsible for a corporate tax reform that could raise online giants’ tax bill.
The document, seen by Reuters, will be published on Thursday, the day before EU finance ministers begin a two-day meeting in the Estonian capital Tallinn, in which they will discuss how to increase taxes on large online businesses accused of paying too little in Europe.
Digital multinationals “minimize the overall tax burden in the EU by routing all revenues to low-tax member states such as Ireland and Luxembourg,” said the report, prepared by EU socialist lawmaker Paul Tang.
The document focuses on the social network Facebook <FB.O> and search engine Google <GOOGL.O>, now part of Alphabet, because the two U.S. companies book most of their EU revenues in low tax-rate Ireland, a move that allows them to pay in the EU much lower taxes than those they face in the rest of the world.
It says that Google pays taxes worth up to 9 percent of its revenues outside the EU, but this ratio goes down to no more than 0.82 percent inside the EU.
“Facebook’s taxes as a share of their revenues recorded outside the EU is between 28 percent and 34 percent, whereas in the EU this is a remarkably low ratio of 0.03 percent to 0.10 percent,” the report adds.
This resulted in estimated revenue losses for EU states, other than Ireland, of between 51 and 54 billion euros between 2013 and 2015, the report concluded.
Tang is in charge of steering through the EU assembly a tax reform, known as common corporate tax base, which aims at harmonizing national tax deductions on business profits.
He plans to introduce an amendment that would force online multinationals to pay taxes in the EU countries where they are present with a “digital platform” that generates at least 5 million euros of annual turnover.
Existing rules require online companies to pay taxes only where they have a physical presence and a tax residence, regardless of where they generate their profits.
Tang’s amendment is similar to a proposal made by the Estonian presidency of the EU, and that will be discussed by EU finance ministers this week.
If EU states decided to tax the revenues of digital companies, rather than their profits, as proposed by France with the backing of Germany, Italy and Spain, that could have generated 4 billion euros in tax revenues from Google and Facebook between 2013 and 2015 if a 5 percent rate was applied, the report estimated.
That measure would also force Amazon <AMZN.O> to pay taxes. The U.S. online retailer, with an EU tax residence in Luxembourg, has been mostly exempted from taxes in the 2013-2015 period because it did not make profits, the report said.
(Reporting by Francesco Guarascio @fraguarascio; Editing by Gareth Jones)