Pushing buttons

Trump set to tussle over EU digital tax plans

Digital 5 – Trump 1800
Source: Handelsblatt Global

Handelsblatt has learned that the United States has threatened to challenge the European Union’s proposals for a new Europe-wide “digital tax” unveiled last month. The United States wants to take the EU’s plans to a tribunal of the World Trade Organization.

While in the past Mr. Trump has scoffed at WTO restrictions, this wouldn’t be the first time he changed his tune. The EU’s proposals, sometimes nicknamed the “Google tax,” would be aimed at large tech companies, above all Google, Apple, Facebook and Amazon. They would impose a tax of 3 percent on companies with annual revenues over €750 million ($925 million) and online revenues within the EU of over €50 million.

The German government, having supported “fair taxation” of big digital companies in its coalition agreement, is now furiously backpedaling. They fear that the tax could further strain trans-Atlantic tensions at a tricky moment. Last month, the Trump administration unveiled new tariffs on imported steel and aluminum, although these have been temporarily halted while EU-US negotiations continue.

The German government is now furiously backpedaling on "fair taxation" of big digital companies.

In the past, the driving force behind an EU digital tax has been France, although Germany, Italy and Spain helped mount the pressure by sending a demand to Brussels last September.

Now, some European countries appear to be breaking ranks. Speaking to Handelsblatt, Irish Finance Minister Paschal Donohoe said: “We believe that the EU should not tackle taxation projects that could further impact our relations and make the talks even more difficult now.” Ireland is home to the European headquarters of many large American technology companies.

The American warning against an EU tax came at a recent meeting of the Organization for Economic Cooperation and Development, say European trade representatives. The US delegation is said to have hinted that it might support Chinese proposals to tax large companies where they raise revenues, not where they are headquartered – a measure sure to impact large German exporters.

It isn’t clear if America will make good on its tariff threats. At Germany’s finance ministry, which still supports the EU proposals, they are seen as merely tit-for-tat rhetoric. Others, however, are taking them very seriously. OECD tax expert Achim Pross said the timing of the proposals could only ratchet up current tensions.

“We believe that the EU should not tackle taxation projects that could further impact our relations.”

Paschal Donohoe, Ireland's finance minister

Germany’s state governments have also expressed unease. On Thursday, North-Rhine Westphalia, Germany’s largest state, sponsored a motion in the upper house of parliament warning of “new disputes impacting the German economy,” and calling on the federal government to work to moderate the EU’s proposals.

The EU claims that the proposed tax would bring in revenues of €5 billion ($6.2 billion). But this figure is questioned by skeptics, particularly among German industry groups. The electronics industry association, ZVEI, says the real figure would be closer to €1 billion. A tax expert with VCI, the German chemical industry body, claims Amazon would pay no more than €6 million more in German taxes under the new rules.

If revenues from the proposed tax could be meager, the cost to individual businesses would be steep. Every firm with more than €750 million in revenue would have to figure out how much of that money was “digital.” Not an easy matter to figure out. Does one, for example, include special offers advertised online? What about car industry data that passes through the cloud? “You could argue that the costs and benefits of the tax are very much at variance,” said Mr. Pross, the OECD tax expert.

Some say the EU proposals are already out of date. Mr. Trump’s own tax reforms have hit big tech companies hard. Not only is tax juggling more difficult now, they are also receiving retrospective US tax bills: Apple’s bill alone will amount to €38 billion.

Nonetheless, the EU digital tax very much remains an issue. EU finance ministers are due to discuss the matter at their informal meeting in Bulgaria in two weeks’ time.

Martin Greive is a correspondent for Handelsblatt based in Berlin. Jan Hildebrand leads Handelsblatt’s financial policy coverage and is deputy managing editor of the Berlin office. Ruth Berschens heads Handelsblatt’s Brussels office, leading coverage of European policy. To contact the authors: greive@handelsblatt.com, hildebrand@handelsblatt.com, berschens@handelsblatt.com

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