EU mulls retaliation over Trump tax overhaul
European countries may fight back against U.S. President Donald Trump’s tax overhaul by arguing that it breaches World Trade Organization (WTO) rules, finance ministers said Tuesday.
Their tough rhetoric came after the ministers gathered in Brussels to discuss a response to the U.S. reform, which many Europeans say unfairly favors American trade interests over their own.
Amid wider divisions over exactly how to proceed, French Finance Minister Bruno Le Maire — who’s been a major advocate for European taxes on big tech companies — said that countries and EU institutions were examining whether Trump’s tax overhaul broke WTO rules.
If it had, Europe would retaliate.
“We are of the view that the new system might be contrary… to the WTO rules,” Le Maire said after the breakfast gathering. “If that’s the case, every option will be on the table.”
Germany’s acting finance minister, Peter Altmaier, echoed his French colleague by pointing to possible breaches to WTO rules.
“If they [punishments] are needed, they need to be carried out,” he said. Possible breaches needed to be “legally checked,” he said, adding: “But it’s clear we need to protect EU interests.”
Complaining to the WTO would further ramp up tensions between the EU and the United States after ministers from the bloc’s five biggest economies warned Trump about breaches to global agreements in a December letter.
Two months later, EU finance ministers are still scrambling to come up with a common response.
During their closed-door meeting, Le Maire warned about the “risk of a tax-dumping race” with the United States, according to an official who was in the room.
Several ministers said that to gain “leverage” over the United States, the EU needed to get its act together and finalize longstanding plans to reform the bloc’s corporate taxation system — which include a proposal for a special tax on digital companies and another to consolidate corporate taxes bases across EU.
Separately, Tax Commissioner Pierre Moscovici said that Europe was pressing ahead with plans for the digital tax.
According to the official who was in the room, Italian Finance Minister Pier Carlo Padoan said: “We should strengthen our own position through CCCTB [Common Consolidated Corporate Tax Base] and digital taxation. This will have an effect on integration, and a more powerful leverage in response to challenges from the U.S. administration.”
Europe’s five biggest economies will report on how the overhaul affects them “in a few weeks,” providing a cue for further action.
But while Le Maire’s comments underscored an urge for action by some countries, the call for a full evaluation of the U.S. tax overhaul’s impact showed that others want to advance cautiously.
Luxembourg’s finance minister, Pierre Gramegna, warned against EU countries grouping together to threaten the United States, which he said would be “counterproductive.”
Ireland’s finance minister, Paschal Donohoe, said: “We should not create further difficulties in the international tax environment.”
Trump’s money vacuum
Europe’s ministers are rushing to respond to a tax change that is already having global effects.
Apple announced last month that it would pay $38 billion in additional U.S. taxes after repatriating cash assets.
And other tech giants have followed suit. Alphabet, the parent company of Google, told investors earlier this month it had booked a $9.9 billion charge related to the U.S. tax reforms. Facebook said it had earmarked $2.3 billion to cover its one-off tax liabilities, according to regulatory filings.
In total, American tech companies hold more than $2.6 trillion of combined assets overseas, according to the Institute on Taxation and Economic Policy, a research group.
Rather than try to compete with low-tax regimes, many EU states that are only just emerging from a growth slump hoped to keep their welfare models afloat by increasing the amount they take from global companies — particularly tech giants that have become some of the most valuable firms anywhere in the world.
Starting late last year, Le Maire became the most vocal advocate for plans to start taxing digital giants, namely Google, Apple, Facebook, and Amazon (known, collectively, as the GAFA companies) on their revenue, instead of their profits as is currently the standard practice.
He won support from a majority of EU states, but his initiative got bogged down due to opposition from low-tax countries like Ireland and Luxembourg.
The European Commission is pushing ahead with its own, separate tax plans, and Brussels officials will outline new proposals next month.
But Europe’s institutional division of labor is not helping to deliver a common response to the U.S. tax changes.
Commission officials are tight-lipped about their plans, which need to win unanimous approval from all 28 member countries if they are to be adopted, and could be contentious.