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The recent spate of regulatory activities in the European Union (“EU”) region has basically made it a graveyard for U.S.-based technology stocks.
Reportedly, the European Commission (“EC”) is planning to impose “digital tax” on Apple (AAPL - Free Report) , Facebook , Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) and Netflix. Per MarketWatch, which quoted a report by FT, these companies will be taxed on their revenues instead of profit in order to put a check on large tax avoidance.
A tax of 3% will be levied on the company’s advertisement revenues, subscription revenues and revenues earned by selling digital data. Per FT, European Commission is estimated to raise Euro 5 billion annually by implementing this tax.
EU’s aim on extracting as much tax revenues from these U.S-based tech giants has already gained support from 10 member countries including Germany, Italy, Spain, France and Portugal. Reportedly, Britain has also lent its support to this initiative.
Tech Giants Have Benefited From Low Taxes
U.S.-based tech giants like Apple have significantly gained from relaxed tax laws in certain countries like Ireland. The EC has ruled that Ireland was charging Apple lower taxes in its attempt to get the company to invest in the region.
The EC stated that Apple owed Ireland $13 billion in back taxes. Both Ireland and Apple are appealing the decision on the grounds that their actions were in keeping with the law as it existed at the time. Last quarter, Europe contributed 23.8% of Apple’s total revenues.
According to a report from the Centre for Economics and Business Research (Cebr), Amazon pays 11 times lesser corporate tax than that of a British bookstore.
We believe that the proposal of increasing the tax bill for these giants will negatively impact their profitability. However, investments by these companies in EU region can significantly decline due to increasing tax burden, going forward.
EU Law in Favour of Local Businesses
EU laws seem to be harsh on the U.S. based big technology companies and favorable for the small and local companies, which depend on these tech giants for the top line.
Per Reuters, Google and Apple are facing strict regulatory pressure against their unfair trade practices with small local businesses.
Recently, France’s Finance Minister, Bruno Le Maire said that both Apple and Google will be dragged to the court. The companies will be charged $2.5 million for the abusive trade practices with the local app developers who sell their apps through Apple App Store and Google Play Store.
Reportedly, both the companies have exploited these small app makers by charging 30% of their sales and held the power to discard the apps anytime from their store. In return, the app makers were rendered powerless to take a legal action against these big companies.
Per Bloomberg, finance ministry of France is also planning to charge Amazon a fine of EUR 10 million.
Britain is also mulling taxing the tech giants like Facebook and Google. Earlier, the country had proposed new taxes on tech giants unless they do more to combat online extremism, according to a report from Reuters.
Moreover, Britain’s sternness regarding the privacy of app user data has compelled Facebook-division WhatsApp to recently sign an undertaking, which prevents WhatsApp from sharing user data with its parent.
Facebook generates almost 25% of its worldwide average revenues per user (ARPU) from Europe.
EU has framed new rules and regulations for the tech companies, particularly those who provide an online platform.
Notably, in June 2017, Google was charged $2.99 billion in fines for giving preference to its own shopping service over its rivals on its search platform.
EU has now made it compulsory for the search engines like — Google, Microsoft’s Bing and e-commerce platform — eBay to specify the parameters of the algorithms behind their rankings, to create a level field for all businesses. They will also have to reframe their terms and conditions if they have any preference for their own services over the others.
Conclusion
Thus, we conclude that EU region where most of these companies enjoy a strong position will get impacted by the new tax reform and revision of their terms and policies.
However, we believe that small member countries of EU such as Ireland, Malta, Cyprus, Denmark, the Czech Republic, Luxembourg and Sweden where these giants invest mostly, will be affected by this reform. Their competitiveness and economic growth will be hurt.
Earlier this month, credit bureau Equifax announced a massive data breach affecting 2 out of every 3 Americans. The cybersecurity industry is expanding quickly in response to this and similar events. But some stocks are better investments than others.
Zacks has just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.
Image: Bigstock
EU Becomes A Graveyard For AAPL, FB, GOOGL, AMZN
The recent spate of regulatory activities in the European Union (“EU”) region has basically made it a graveyard for U.S.-based technology stocks.
Reportedly, the European Commission (“EC”) is planning to impose “digital tax” on Apple (AAPL - Free Report) , Facebook , Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) and Netflix. Per MarketWatch, which quoted a report by FT, these companies will be taxed on their revenues instead of profit in order to put a check on large tax avoidance.
A tax of 3% will be levied on the company’s advertisement revenues, subscription revenues and revenues earned by selling digital data. Per FT, European Commission is estimated to raise Euro 5 billion annually by implementing this tax.
EU’s aim on extracting as much tax revenues from these U.S-based tech giants has already gained support from 10 member countries including Germany, Italy, Spain, France and Portugal. Reportedly, Britain has also lent its support to this initiative.
Tech Giants Have Benefited From Low Taxes
U.S.-based tech giants like Apple have significantly gained from relaxed tax laws in certain countries like Ireland. The EC has ruled that Ireland was charging Apple lower taxes in its attempt to get the company to invest in the region.
The EC stated that Apple owed Ireland $13 billion in back taxes. Both Ireland and Apple are appealing the decision on the grounds that their actions were in keeping with the law as it existed at the time. Last quarter, Europe contributed 23.8% of Apple’s total revenues.
Apple Inc. Revenue (TTM)
Apple Inc. Revenue (TTM) | Apple Inc. Quote
According to a report from the Centre for Economics and Business Research (Cebr), Amazon pays 11 times lesser corporate tax than that of a British bookstore.
Amazon.com, Inc. Revenue (TTM)
Amazon.com, Inc. Revenue (TTM) | Amazon.com, Inc. Quote
We believe that the proposal of increasing the tax bill for these giants will negatively impact their profitability. However, investments by these companies in EU region can significantly decline due to increasing tax burden, going forward.
EU Law in Favour of Local Businesses
EU laws seem to be harsh on the U.S. based big technology companies and favorable for the small and local companies, which depend on these tech giants for the top line.
Per Reuters, Google and Apple are facing strict regulatory pressure against their unfair trade practices with small local businesses.
Alphabet Inc. Revenue (TTM)
Alphabet Inc. Revenue (TTM) | Alphabet Inc. Quote
Recently, France’s Finance Minister, Bruno Le Maire said that both Apple and Google will be dragged to the court. The companies will be charged $2.5 million for the abusive trade practices with the local app developers who sell their apps through Apple App Store and Google Play Store.
Reportedly, both the companies have exploited these small app makers by charging 30% of their sales and held the power to discard the apps anytime from their store. In return, the app makers were rendered powerless to take a legal action against these big companies.
Per Bloomberg, finance ministry of France is also planning to charge Amazon a fine of EUR 10 million.
Britain is also mulling taxing the tech giants like Facebook and Google. Earlier, the country had proposed new taxes on tech giants unless they do more to combat online extremism, according to a report from Reuters.
Moreover, Britain’s sternness regarding the privacy of app user data has compelled Facebook-division WhatsApp to recently sign an undertaking, which prevents WhatsApp from sharing user data with its parent.
Facebook generates almost 25% of its worldwide average revenues per user (ARPU) from Europe.
Facebook, Inc. Revenue (TTM)
Facebook, Inc. Revenue (TTM) | Facebook, Inc. Quote
Search Engines under Strict Scrutiny
EU has framed new rules and regulations for the tech companies, particularly those who provide an online platform.
Notably, in June 2017, Google was charged $2.99 billion in fines for giving preference to its own shopping service over its rivals on its search platform.
EU has now made it compulsory for the search engines like — Google, Microsoft’s Bing and e-commerce platform — eBay to specify the parameters of the algorithms behind their rankings, to create a level field for all businesses. They will also have to reframe their terms and conditions if they have any preference for their own services over the others.
Conclusion
Thus, we conclude that EU region where most of these companies enjoy a strong position will get impacted by the new tax reform and revision of their terms and policies.
However, we believe that small member countries of EU such as Ireland, Malta, Cyprus, Denmark, the Czech Republic, Luxembourg and Sweden where these giants invest mostly, will be affected by this reform. Their competitiveness and economic growth will be hurt.
Zacks Rank
Currently, Apple, Alphabet and Amazon carry Zacks Rank #3 (Hold), while Facebook sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Can Hackers Put Money INTO Your Portfolio?
Earlier this month, credit bureau Equifax announced a massive data breach affecting 2 out of every 3 Americans. The cybersecurity industry is expanding quickly in response to this and similar events. But some stocks are better investments than others.
Zacks has just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.
Download the new report now>>