Europe Risks Trade Showdown by Defying U.S. on Digital Taxes
France Calls U.S. Exit From Digital-Tax Talks a ‘Provocation’
(Bloomberg) -- Transatlantic trade tensions are at risk of boiling over with several European countries vowing to move ahead with plans to tax tech companies operating within their borders in spite of a U.S. threat to retaliate with tariffs.
The U.S. said on Wednesday that it would withdraw from a long-running effort at the Organisation for Economic Cooperation and Development to develop a global tax, and has threatened retaliatory tariffs against any nations that impose levies on the digital revenue of American companies.
Spain, Italy, France and the U.K. are some of the countries that have implemented or announced plans to tax digital multinationals in an effort to capture the profits of businesses with little or no physical presence in a market where they do business. Talks have been ongoing at the OECD since 2016 to try to form a joint set of rules.
“It’s a provocation to all OECD partners as we were just a few centimeters away from an agreement on taxing digital giants,” French Finance Minister Bruno Le Maire said Thursday on France Inter radio, adding that the country’s tax would go into effect. “It’s also a provocation to the allies of the U.S.”
EU Tax
The U.S. and Europe narrowly avoided a trade war over the issue in January, but France pledged to delay collecting its levy until December, in the hopes that an agreement could be reached at the OECD before than.
The European Union also weighed in on Thursday, announcing that it was prepared restart its effort to institute a digital tax for the 27-member bloc.
“I very much regret the U.S. move to put the brakes on international talks on taxation of the digital economy,” Paolo Gentiloni, the EU commissioner in charge of financial affairs, said in a statement. If the OECD approach doesn’t come into fruition by the end of the year, “we will come forward with a new proposal at EU level.”
Gentiloni also said that the EU supports member states that have instituted their own digital taxes, and that they would “react as one.”
‘Trade War’
U.S. Treasury Secretary Steven Mnuchin wrote a letter to the finance ministries of France, U.K., Spain and Italy, saying he doesn’t want to continue negotiations at the OECD to agree on a global system for collecting taxes on big tech companies’ digital revenue.
The European countries have already sent a letter replying to Mnuchin, Le Maire said. Gentiloni said he hoped the move from Washington would only be a “temporary setback” and the EU still backs the OECD approach.
Relations between the U.S. and the EU risk plumbing new lows, after President Donald Trump threatened to hit Europe’s car exporters with tariffs due to a lobster dispute and an ongoing conflict related to aircraft subsidies.
In February, the U.S. began an investigation into digital service taxes considered by several trading partners, including the EU, Austria, Italy and Spain, in a move that could lead to tariffs being imposed on those countries’ exports to the U.S.
Failure to reach a global agreement “would trigger tax disputes and, inevitably, heightened trade tensions,” OECD Secretary-General Angel Gurria said in an emailed statement. “A trade war, especially at this point in time, where the world economy is going through a historical downturn, would hurt the economy, jobs and confidence even further.”
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