Reassuringly, the European Union doesn’t often explain itself to the Americans before it makes laws. But the EU Commission did just that last week, to avoid misunderstandings over its proposed new tax on the digital revenues, as EU Financial Affairs Commissioner Pierre Moscovici told US Treasury Secretary Steven Mnuchin in a letter. He said the EU was by no means going after rich American tech companies. The Europeans simply wanted to ensure “fair taxation” of digital companies.
It’s highly unlikely that the letter helped. The draft law the Commissioner presented on Wednesday has incensed the Americans. The proposal would see a tax imposed on global Internet giants that make money from customer data. No one can deny that it will overwhelmingly affect US companies such as Google, Facebook, Amazon and Uber. It makes one wonder if Mr. Moscovici was taking the US finance minister for a fool.
To be sure, the US Internet giants are getting a good tax deal in Europe. Google and Facebook have attained virtual monopolies in the EU and generate billions of euros in revenues with European customer data. But their earnings are beyond the reach of European tax authorities because they’re not based in Europe.
It makes one suspect that the real purpose of the tax plan is to fuel anti-American and anti-globalization sentiment.
It’s not a satisfactory state of affairs. But the EU’s plan won’t change things. It’s already looking pretty certain that the online revenue tax will be kicked into the long grass and then quietly canned. Only 10 of the soon-to-be 27 EU countries (after Britain leaves) support it, meaning the EU will struggle to get the unanimous agreement needed for the tax to come into force.
Ireland and Luxembourg, home to the EU headquarters of Apple and Amazon respectively, won’t agree to share their tax revenues from those firms with their European partners. Ireland said the tax merely served to shift revenues from small EU countries to big ones — an accusation levelled mainly at France whose president, Emmanuel Macron, is the driving force behind the plan. He pushed the EU Commission to present the draft legislation this week and he has put it on the agenda for the EU summit on Friday.
Germany isn’t thrilled with the idea either, not least because the timing couldn’t be worse. US tariffs on steel and aluminum imports were due to come into force on Friday, raising the stakes. However, as this story went to press it seemed likely that EU members had won at least a temporary exemption after intense lobbying. Even so, the digital tax has stirred things up, with even some members of the Commission agreeing the timing isn't ideal, and blaming the French for pushing it.
European businesses aren’t happy either. The tax could have undesired “side effects” for companies in Germany, said government sources in Berlin. Europe lags far behind the US in digital technologies and politicians keep preaching that Europe urgently needs to catch up. It’s unlikely that an online revenue tax will do much to help in that regard.
It makes one to suspect that the real purpose of the tax plan is to fuel anti-American and anti-globalization sentiment — mainly in France.
The EU will only be able to plug the digital tax gaps by exerting pressure at the group of industrialized nations, the OECD, to ensure that all big nations act in concert. Admittedly, that will take a long time. But European unilateralism with half-baked tax laws based on shaky legal ground will cause nothing but trouble. To borrow a phrase from Donald Trump: the idea is “bad, very bad.”
Ruth Berschens heads Handelsblatt's Brussels office, leading coverage of European policy. To contact the author: [email protected]