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Leonid Bershidsky

Europe's Going the Wrong Way on Taxing Tech

A bad tax is a bad tax, temporary or permanent.
Rushing the wrong way.

Rushing the wrong way.

Photographer: Jasper Juinen

The European Commission on Tuesday tentatively opened the door to a plan by 10 member states, including Germany, France, Italy and Spain, to hit multinational tech companies with a turnover tax to compensate for their avoidance schemes. A new proposal presented by European Commission Vice President Valdis Dombrovskis allows for such stop-gap measures while it works with members states on a better, more permanent solution. It's a mistake: A bad tax is a bad tax, temporary or permanent. 

According to the Commission, "domestic digitalized business models are subject to an effective tax rate of only 9%, less than half compared to traditional business models." It's harder to tax a firm that has fewer tangible assets. That difficulty increases with cross-border business models that allow companies to move intangible assets, such as intellectual property, to places where tax rates are low or nonexistent. Wal-Mart has paid 46 times as much to governments as Amazon since 2008. Google, Amazon, Apple -- all the U.S. household names in tech -- pay very little tax in the European Union.