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BRUSSELS — European authorities on Wednesday proposed revamping the way many technology companies in the region are taxed, outlining wide-ranging changes that they hope will curb tax avoidance across the European Union.
The system would tax a company’s revenues in the countries where they are generated, rather than its profits. Regulators say so-called profit-shifting allows some businesses to use regional offices in low-tax countries to reduce payments.
The plan pits the European Union against the United States as both sides battle to retain corporate tax revenue. It is one of a number of issues on which Brussels and Washington have clashed, from the broader regulation of the technology industry to a dispute over American steel and aluminum tariffs.
The proposals unveiled on Wednesday also support the argument that Europe is the world’s most prominent regulator of technology and digital services. The 28-nation European Union has outsize impact not just for its market of about 500 million customers, but because officials around the world increasingly take their cue from Brussels on how to regulate the tech industry.
“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.
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.
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.
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