Transatlantic Tiff

Europe must unite to win tax war

Lee Hsien Loong, Singapore's prime minster, speaks as U.S. President Barack Obama, right, listens during an official arrival ceremony on the South Lawn of the White House in Washington, D.C., U.S., on Tuesday, Aug. 2, 2016. The occasion marks first official visit by a Singapore prime minister since 1985. Photographer: Andrew Harrer/Bloomberg
The U.S. has criticized the E.U. for acting "willfully" on the issue of back taxes from companies like Apple and Starbucks.
  • Why it matters

    Why it matters

    An investigation into special tax incentives for U.S. corporations in some E.U. countries has triggered what has been described as a “tax war,” and it threatens to derail future trade deals.

  • Facts

    Facts

    • The dispute is basically about a distribution of funds. Everyone wants big corporations to pay their taxes. But should they pay them at home, in the U.S., or in Europe, where they made the money?
    • U.S. corporations park $2.4 trillion in profits overseas, depriving the U.S. Treasury of close to $700 billion in revenues.
    • The U.S. is putting pressure on the E.U., saying the dispute endangers future trade agreements, including the controversial TTIP deal. The author argues that Europe must face this pressure as a single bloc.
  • Audio

    Audio

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For once, everyone in Washington agrees: Congress, the administration, and even the Republicans and the Democrats. They are all concerned, alarmed even, about the European Union’s latest tax investigations, which have put major American corporations like Apple, Starbucks and Amazon in the European Commission’s crosshairs. Money and power are at stake, with potential back taxes reaching the double-digit billions.

Washington is already threatening “retaliatory action,” but has not provided details about what that might mean. The Americans are maximizing their attempts to intimidate the Europeans by keeping details of any possible escalation vague. What began as a European investigation into suspicious models for subsidies has turned into a serious burden on transatlantic trade relations. There is even talk of a “tax war.”

Several years ago, the Americans went so far as to describe a World Trade Organization decision in favor of the E.U. as an “atom bomb.” But the explosive force could be bigger this time, because the current dispute is occurring at a time when chauvinism and economic nationalism are being revived on both sides of the Atlantic.

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