Digital services tax for big tech companies in Europe

Big tech companies are bracing for new taxes in Europe that could cost them billions.

The tax initiative is the latest in a series of European regulatory and legal efforts to target tech companies. The European Union has imposed tough new data privacy rules, and hit tech companies such as Google (GOOGL) with major antitrust fines.

The changes to the tax system are being championed by French President Emmanuel Macron, who has thrown his weight behind a European Commission plan for a 3% tax on sales of select online services. It could take effect as early as 2020.

Policymakers across Europe are developing rules that would force tech companies to pay taxes on revenue generated in the region, rather than on profits. Tech companies are lobbying hard against the changes.

"It is a pretty big departure from the general understanding of how you apply tax on multinationals," said Daniel Bunn, director of global projects at US think tank The Tax Foundation.

The levy would apply to companies with annual global revenue of at least €750 million ($851 million) and online sales of €50 million ($56.8 million) in the European Union. Google, Amazon (AMZN), Facebook (FB) and Apple (APPL) would be top targets.

The United Kingdom, which is scheduled to leave the European Union in March 2019, is moving even more quickly. It broke ranks with its peers on Monday, announcing a 2% levy on sales of digital services in the United Kingdom. The new tax will take effect from April 2020.

The British government estimates that its plan will generate £400 million ($510 million) a year in revenue, while the European Union expects its tax will raise €5 billion ($6.4 billion).

While the companies are fighting back hard. Digital Europe, which represents the industry in the region, said the Commission's proposal would undermine existing tax treaties and effectively tax them twice on the same sales.

"To safeguard the principles of fairness and integrity in tax policy, any tax on the activities of corporations should be linked to profit, not revenues," the group said in a letter to European ministers earlier this month. Its members include Apple, Amazon, Google, IBM (IBM) and Microsoft (MSFT).