Just a few days after European Union announced a digital services tax for companies selling in EU markets, Technology Company chiefs have come out strongly to criticize the move, saying that the tax will hinder innovation and eventually hurt economic growth. Leaders of the 16 tech companies affected including Booking.com, Zalando and Spotify wrote a letter to the finance ministers saying that the proposed tax would make it hard to achieve EU’s goals pertaining to a digital single market. It will also bring harm to the businesses that are considered as catalysts for economic growth and those that are major employers in the European economy.
The spokesman at the EU’s executive Commission Johannes Bahrke defended the proposal, saying that the proposed tax aimed at creating equality for all companies, whether they are based within or outside the EU. Johannes said that the proposal was still valid since it was based on the most basic principle of corporate taxation. The law requires all profits to be taxed where value is created and that is just what EU is doing. The spokesman however said that the commission would seek an international agreement on the matter.
The plan to introduce a service tax to tech companies was unveiled in March. According to the plan, EU countries should be taxing tech firms that make profits on their territories, whether they have a physical location in those territories or not.
Tech companies have not received the plan well, saying that the proposal is just a way of making tech companies pay more taxes. However, corporate tax rules have not been updated especially after the emergence of borderless digital marketplaces such as Amazon and Facebook. These companies have been making huge profits but paying very little tax than they should.
European Union wants to ensure that foreign tech companies like Google are paying the taxes they owe countries of their operation. The tax would only target UK-generated revenues, according to Treasury Chief Phillip Hammond. He however hopes that an international solution to the matter will be sought for the good of everyone.
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