Google creates a separate shopping service unit to avoid EU fines

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Google is preparing to split off its shopping service into a standalone unit in order to satisfy EU demands over the display of rival shopping comparison sites.

According to people familiar with matter, Google has a deadline of Thursday (28 September) to comply with an EU antitrust order and prove to the Union it has found a way to give equal treatment to its competitors in search.

The standalone shopping service will remain part of Google, but will operate separately and use its own revenues to bid for ads against rivals.

Last week, it was reported that Google would only offer to display rival sites via an auction, but did not at the time have the idea of completely separating its shopping service and as such that proposal would likely have fallen short of EU demands.

EU regulators ordered Google to stop promoting its own shopping search results over rivals’ back in June, when the company was fined a record €2.42bn (£2.14bn) for antitrust violations.

Under Google’s proposal, the company will make changes to its advertising panel at the top of the search results, giving competitors the opportunity to bid for all 10 available slots. This change will only affect Google’s search results in Europe.

Although Google Shopping will also have to bid for the slots it wants, any bids will come from its own operating costs and will not be subsidised by Google itself.

Digital tax raise 

Commission plans to increase taxes on digital firms risk undermining growth and could stifle global efforts to find common solutions to tax issue, US companies operating in the EU said yesterday.

The comments echo several EU government’s position, which are opposed to the proposals that would see some online companies with little or no physical presence in many EU member states taxed based on their turnover, rather than profits.

Critics have said that online firms such as Google or Facebook pay too little tax in the EU by re-routing most their profits to low-rate countries, such as Luxembourg or Ireland.

Frustrated by how long it is taking the world’s rich nations to reach a deal on how to fairly tax digital giants, the EU has threatened to move ahead alone with a tax on turnover, or with other short or long-term measures.

“Unilateral action by the EU would seriously undermine international efforts to address tax issues,” Susan Danger, head of the American Chamber of Commerce to the EU (AmCham EU), said.

AmCham EU said a turnover tax, as proposed by France and backed by other large EU countries, would reduce investment, hit jobs and penalise start-ups, low-margin and loss-making companies. Current rules exempt loss-making firms from paying taxes.

A report by EU lawmaker Paul Tang said the US online retailer Amazon, which has its EU tax residence in Luxembourg, had been mostly exempted from taxes in the 2013-2015 period because it did not make profits.

The EU is also considering more structural measures to change the way companies are taxed, so that levies could be raised when they have a “virtual” platform in a country, and not only a physical presence.

Changes to existing rules could be added to a review of corporate tax rules currently under debate in the EU Parliament, the Commission said.

AmCham EU also criticised the initiative for a common tax base in the 28-country bloc, saying the move could “adversely affect EU competitiveness and growth if it is not in line with internationally agreed rules”.