BRUSSELS: The EU will unveil proposals for a digital tax on US tech giants on Wednesday, bringing yet more turmoil to Facebook after revelations over misused data of 50 million users shocked the world.
The special tax is the latest measure by the 28-nation European Union to rein in Silicon Valley giants and could further embitter the bad-tempered trade row pitting the EU against US President Donald Trump.
EU Economics Affairs Commissioner Pierre Moscovici will present proposals aimed at recovering billions of euros from mainly US multinationals that shift earnings around Europe to pay lower tax rates.
The transatlantic blow has been championed by French President Emmanuel Macron and will be discussed over dinner at an EU leaders summit on Thursday.
“This will be given top priority as tax file. There is a lot of political momentum on this issue,” an EU official said ahead of the announcement.
The unprecedented tech tax follows major anti-trust decisions by the EU that have cost Apple and Google billions and also caught out Amazon.
The commission’s tax, expected to be about 3 percent of sales, would affect revenue from digital advertising, paid subscriptions and the selling of personal data.
EU agencies are also set to tighten rules on data privacy, targeting tech firms. That file has come to the forefront following revelations that a firm working for Trump’s US presidential campaign harvested data on 50 million users of Facebook.
The EU tax plan will target mainly US companies with worldwide annual turnover above 750 million euros ($924 million), such as Facebook, Google, Twitter, Airbnb and Uber.
Spared are smaller European start-ups that struggle to compete with them. Companies like Netflix, which depend on subscriptions, will also avoid the chop.
Brussels is seeking to choke tax-avoidance strategies used by the tech giants that, although legal, deprive EU governments of billions of euros in revenue.
Under EU law, firms like Google and Facebook can choose to book their income in any member state, prompting them to pick low-tax nations like Ireland, the Netherlands or Luxembourg.
As an example, Amazon operates across the bloc, but is headquartered in tiny Luxembourg, which has offered sweetheart tax deals that have allowed the firm low effective taxes.
The European Commission estimates that digital businesses pay an average effective tax rate of just 9.5 percent, compared with the 23.3 percent that traditional businesses pay.
These numbers are, however, disputed by the tech giants, which have debunked the tax as a “populist and flawed proposal.”
“At the very least, the tax is prone to be interpreted by the US as a hostile act in the already begun trade war,” wrote tax specialist Johannes Becker in a blog post tweeted by the Computer & Communications Industry Association.
Under the EU plan, revenue from the digital tax would be fairly distributed to where the companies actually operate, according to the level of activity in those countries and not the level of booked profit.
US Treasury Secretary Steven Mnuchin last week firmly warned Europe against jeopardizing the major contribution tech firms make to US jobs and economic growth.
“The US firmly opposes proposals by any country to single out digital companies,” Mnuchin said.
The EU’s Moscovici sought to reassure that “these proposals are neither a response to a French request nor a response against the United States.”
The EU has been on tenterhooks amid fears of a global trade war since Trump this month suddenly announced steep duties of 25 percent on steel and 10 percent on aluminum.
The EU’s trade commissioner Cecilia Malmstroem is in Washington this week trying to get the bloc exempted. EU President Donald Tusk on Tuesday said the bloc’s response would be “responsible and reasonable.”
EU to unveil digital tax targeting Facebook, Google
EU to unveil digital tax targeting Facebook, Google
Global brands shut Middle East stores as conflict causes chaos
- Luxury brands and retailers close stores in Middle East
- Conflict threatens the region that has been luxury’s fastest growing
- Mass-market retailers monitor situation, adjust operations in region
PARIS: In Dubai and other major Middle Eastern shopping hubs, many stores are closed or operating with a skeleton staff as the escalating conflict in the region causes chaos for businesses and travel.
The US-Israeli air war against Iran expanded on Monday with no end in sight, with Tehran firing missiles and drones at Gulf states as it retaliates for a weekend of bombing that killed Iran’s supreme leader and reportedly killed scores of Iranian civilians, including a strike on a girls’ primary school.
Chalhoub Group, which runs 900 stores for brands from Versace and Jimmy Choo to Sephora across the region, said its stores in Bahrain were closed, while other markets, including the UAE, Saudi Arabia, and Jordan remained open though staff attendance was “voluntary.”
“We operate with a lean team formed of members who volunteered and feel comfortable to come to the store,” Chalhoub’s Vice President of Communications Lynn al Khatib told Reuters, adding that the company’s leadership team personally visited Dubai Mall and Mall of the Emirates on Monday morning to check in with workers.
E-commerce giant Amazon closed its fulfillment center operations in Abu Dhabi, suspended deliveries across the region and instructed its employees in Saudi Arabia and Jordan to remain indoors, Business Insider reported on Monday, citing an internal memo.
Gucci-owner Kering said its stores were temporarily closed in the UAE, Kuwait, Bahrain and Qatar and it has suspended travel to the Middle East.
Luxury growth engine under threat
Shares in luxury groups LVMH, Hermes, and Cartier-owner Richemont were down 4 percent to 5.7 percent on Monday afternoon as investors digested the knock-on impacts of the conflict.
The Middle East still accounts for a small share of global spending on luxury — between 5 percent and 10 percent, according to RBC analyst Piral Dadhania. But the region was “luxury’s brightest performer” last year, according to consultancy Bain, while sales of expensive handbags have stalled in the rest of the world.
Now, shuttered airports have put an abrupt stop to tourism flows into the region and missile strikes — including one that damaged Dubai’s five-star Fairmont Palm hotel — are likely to dissuade travelers, particularly if the conflict drags on.
“If you assume that it’s a $5 billion to $6 billion (travel retail) market and let’s say it’s going to be shut down for a month, we are talking about hundreds of millions of dollars that are definitely at risk,” said Victor Dijon, senior partner at consultancy Kearney.
If Middle Eastern shoppers cannot travel to Paris or Milan, that could also hurt luxury sales in Europe, he added.
Luxury brands have been investing in lavish new stores and exclusive events across the region. Cartier unveiled a “high-jewelry” exhibition in Dubai’s Keturah Park just days before the conflict started.
Cartier and Richemont did not reply to requests for comment.
Luxury conglomerate LVMH has also bet big on the region. Last month, its flagship brand Louis Vuitton staged an exhibition at the Jumeirah Marsa Al Arab hotel, and beauty retailer Sephora launched its first Saudi beauty brand.
LVMH does not report specific figures for the region, but in January Chief Financial Officer Cecile Cabanis said the Middle East has been “displaying significant growth.” LVMH did not reply to a request for comment on how its business may be impacted by the conflict.
The Middle East has also attracted new investment from mass-market players. Budget fashion retailer Primark said in January that it plans to open three stores in Dubai in March, April and May, followed by stores in Bahrain and Qatar by the end of the year.
“Primark is set to open its first store in Dubai at the end of March but clearly this is a fast-moving situation which we are monitoring closely,” a spokesperson for Primark-owner Associated British Foods said.
Apple stores in Dubai will remain closed until Thursday morning, the company’s website showed, while Swedish fast-fashion retailer H&M said its stores in Bahrain and Israel are closed.
Consumer goods group Reckitt has told all employees in the Middle East to work from home, temporarily closed its Bahrain manufacturing site and suspended all business travel to the region until further notice.
