Europeans vow to pursue digital tax plans after US “provocation”

Europeans vow to pursue digital tax plans after US “provocation”(arstechnica.com)

40 points by Xoltus 5 years ago | 71 comments

laser 5 years ago |

From a purely national interest standpoint, it's hardly surprising the US would be uninterested in negotiations given the fact it's the global digital products leader. While it's certainly true some such rules are worthwhile at the minimum tax level to stop global mega-corps avoiding taxes, like the old Double Irish loophole [1], the negotiations didn't break down over such provision, as the article mentions.

The negotiations broke down because the Europeans have failed to develop as successful a digital economy and run a large digital economic deficit with the United States. They want to levy a tax against an American import to help this trade imbalance, while claiming it doesn't amount to a trade tariff. Given the amount of economic value at stake, of course the Americans are going to view it as an unjust trade tariff and fight against it, while the Europeans will view it as a fair and justified tax for value captured in their domestic market. The global minimum tax has mutual agreement, however, so don't use that to distract or straw-man non-existent disagreement, avoiding the real and essentially intrinsically zero-sum crux of the disagreement here.

[1] https://en.wikipedia.org/wiki/Double_Irish_arrangement

Mirioron 5 years ago | |

The worst part about taxes like this is that they make it even harder for Europe to ever catch up. Taxes like this will make Europe a less attractive location for a business like that. Investors will be less likely to invest, there's a greater regulatory burden for anyone who does want to start the business, and you will and up paying more in taxes.

0xfaded 5 years ago | | |

Europe has VAT, which from a simplified perspective means that businesses don't directly pay any consumption tax, but have to charge VAT on the value of the goods and services sold to consumers.

So for purchases within Europe, the end consumer is already paying a 25% tax on the digital services provided by google.

But for good and services sold outside the EU, and remember that Europe have export driven philosophies, there is essentially no government revenue from foreign digital services.

Europe deserves compensation for buying American digital services in the same way America deserves compensation for buying German cars. It doesn't. Instead it needs to focus on a more competitive business environment where the money is cycled more times through the economy before ultimately making it's way to the government.

ijpsud 5 years ago | | |

> they make it even harder for Europe to ever catch up

You've stated this as a fact, but it's not self-evident. There are obviously cases where some degree of "protectionism" makes sense. For example, you probably wouldn't want to let yourself get into a situation where another country supplies 100% of your food, if you could help it. As an extreme case, if you can produce all your food locally and it only makes your food 1% more expensive (than the tariff-less case), that's very likely a great trade-off.

Some degree of protectionism can make sense in certain circumstances. I'm not claiming it necessarily makes sense in this case (could very well be a terrible idea), but I think you'd need some evidence or reasoning behind the claim that it's definitely a bad thing for Europe.

simonblack 5 years ago | |

From a purely national interest standpoint, it's hardly surprising the US would be uninterested in negotiations given the fact it's the global digital products leader.

A time will come when the US is not the global digital products leader. I surmise that the US will then be very much in favor of digital taxes.

fauigerzigerk 5 years ago | |

>The negotiations broke down because the Europeans have failed to develop as successful a digital economy and run a large digital economic deficit with the United States.

That is undeniably one aspect of it. However, I think the other one is that digital services have become a larger part of the world economy and they are structurally unlike anything that existed when the current rules of taxation were devised.

Traditionally, services required people on the ground and local subsidiaries that were subject to taxation and regulation. For instance, you can't run banking and insurance services for European customers entirely from the US. Trade in goods always benefitted from geographic proximity as well, even without tariffs.

A situation where you can provide services to a huge number of customers on the other end of the world without any local representation or taxation of corporate profits (or other income) is historically relatively new and does in my view justify calls for reform of global taxation.

>They want to levy a tax against an American import to help this trade imbalance, while claiming it doesn't amount to a trade tariff.

Claiming that trade imbalances as such are somehow unfair and need to be remedied is in my view nonsense, but it is an idea popularised by Mr. Trump himself.

You can't have it both ways unless you accept that mercantilist power politics is all there is and neither enlightened self interest nor principles play any role whatsoever. I think we can do better than that.

rrtthu 5 years ago | |

The logic of the tax is "a product consumed on a territory is subject to tax in said territory". Saying this is akin to an import tax is like saying the VAT is an import tax.

dogma1138 5 years ago | | |

This is a gross revenue tax levied on the providers those services already collect VAT.

This isn’t in any shape or form comparable to VAT this is an import tariff.

TomMarius 5 years ago | | |

VAT taxes the final consumer.

LatteLazy 5 years ago |

I find the fact talks fell through particularly concerning as right now we should all be presenting a united front against China.

I also think they should call this a digital tax or apply it only to digital services. I understand that’s where the biggest impact will be felt but a minimum corporation tax rate shouldn’t depend on business type and I dislike the idea people are free to target companies for being “too successful”.

knolax 5 years ago |

More economic saber-rattling. We need less of this jingoist bull.

dantheman 5 years ago |

It's insane that they want to propose a global minimum corporate tax.

pjc50 5 years ago | |

On the contrary, it's necessary if corporations can operate internationally and transfer money untaxably between jurisdictions, otherwise the global effective tax rate is that of the lowest country.

smabie 5 years ago | | |

What's wrong with that? Countries need to compete just like corporations. Small countries need someway to compete for global talent, and low taxes are a good incentive.

yokaze 5 years ago | |

It's insane, that there isn't one already.

https://www.investopedia.com/terms/b/beggarthyneighbor.asp

FranzFerdiNaN 5 years ago | |

If you care about fair trade at all, a minimum tax rate is necessary, else you might as well put it at 0, because that's what it will fall towards eventually.

tanilama 5 years ago | |

idk, at least they are trying to get revenue for their own people from somewhere else.

Can't see a reason why they wouldn't pursue this objective except US's objection, now the relation had soured anyway.

monadic2 5 years ago | |

How do you figure?

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