Europe Tightens Screws on U.S. Tech Amid Trans-Atlantic Tensions Over Trade
March 14 2018 - 11:50AM
Dow Jones News
By Natalia Drozdiak in Brussels and Sam Schechner in Paris
Europe is zeroing in on U.S. tech companies amid rising
trans-Atlantic trade tensions.
France on Wednesday petitioned to fine Apple Inc. and Alphabet
Inc.'s Google for allegedly taking advantage of smaller French
software developers. A complaint filed by the finance ministry
asked a Paris court to order the companies to end "abusive
commercial practices."
In Brussels, the European Union next week plans to announce two
new legislative proposals to increase taxes on tech giants.
Although the EU has been working on the new rules since last
year, the announcement of the proposals, which will hit squarely at
the U.S.'s largest tech firms, comes as tensions between Brussels
and Washington have escalated over trade.
The European Commission, the EU's executive body, has warned it
will take countermeasures against the U.S. if it is not exempted
from plans by President Donald Trump to impose tariffs on steel and
aluminum imports.
The U.S. has also recently passed a tax overhaul that could hit
European tech and pharmaceutical firms operating in the U.S. Each
side has accused the other of protectionism, raising the specter of
a trade war.
"Don't consider this aggressive from us," said Pierre Moscovici,
the European Commission's economy chief, in an interview about the
EU's tax plans. "It's not an anti-American measure. The fact is
that some of those companies are American. It's not protectionist.
It's about fair taxation."
The EU wants to modernize corporate tax-rules, which
traditionally have been based on physical assets and where a
company operates. The commission wants to account for virtual
operations, such as targeted advertisements a search-engine sells
using data collected in a country where it has no permanent
establishment.
As part of the EU's tax package, it will likely tax tech firms'
revenue, as opposed to profit. The legislation could be short-term,
preceding broader changes defining permanent establishment in the
virtual world.
EU officials, who are still completing the details of the
package, said the tax rate for the short-term measures could fall
between 1% and 5% and could target revenue based on where users are
located. Mr. Moscovici said the new rules would avoid any risks of
double-taxation as well as unnecessary burdens on smaller
businesses.
France has led the push to increase taxes on the tech companies,
calling on the commission to propose the short-term measures.
French Finance Minister Bruno Le Maire and others argue that tech
giants use legal loopholes to shift too much profit to low-tax
jurisdictions, and that Europe must tax revenue instead until laws
can be changed to stamp out such practices.
The move in Paris come after U.K. Treasury Chief Philip Hammond
confirmed Tuesday that he is intending to press ahead with plans to
explore the merits of tweaking the way corporation tax is levied on
tech multinationals operating in the U.K.
Paris has sharpened its rhetoric against U.S. tech companies in
recent months. On Wednesday the finance ministry filed the
complaint against Google and Apple, following a three-year
government investigation into how the Silicon Valley companies
treat French startups that develop and sell applications for mobile
phones. Some developers and publishers are unhappy that Apple and
Google can at times take a portion of in-app purchases and get
access to more data on their users and subscribers than the
developers do.
"We believe our terms comply with French laws and are looking
forward to making our case in court," a Google spokeswoman said.
Apple didn't immediately respond to requests for comment.
The French finance ministry says there is no connection between
taking on tech firms and new U.S. tariffs or taxes.
Still, some EU officials have cautioned that the EU's new tax
rules could be perceived by Washington as a form of retaliation
against Mr. Trump's tariffs, particularly if the bloc doesn't
pursue a long-term agreement at a global level with the
Organization for Economic Cooperation and Development. The OECD is
a forum of wealthy countries, which includes EU countries, Japan
and the U.S.
"It's difficult for the Europeans to guess what the reactions of
the Americans will be and what context they are going to set this,"
said Pierre Gramegna, Luxembourg's finance minister. "And that's
why it's so important that this is being done at OECD level."
The European Commission will join finance ministers from the
Group of 20 countries this weekend, where they are expected to
discuss digital taxation, including a report drafted by the OECD on
the subject. Some finance ministers said they hoped the commission
would take the report into consideration ahead of plans to unveil
the new tax rules on Wednesday.
Mr. Moscovici said he was hoping for a common approach with the
non-EU countries but the EU was taking immediate action since
legislation would need to be adapted to various economies and their
different structures.
It's unclear how much success the commission will have with its
proposals. The EU has struggled for years to close tax loopholes
because all its member countries, including low-tax jurisdictions
like Ireland and higher ones like Germany, must agree unanimously
on tax matters.
Write to Natalia Drozdiak at natalia.drozdiak@wsj.com and Sam
Schechner at sam.schechner@wsj.com
(END) Dow Jones Newswires
March 14, 2018 12:35 ET (16:35 GMT)
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