European digital taxes unfair to big tech, says US Trade Representative
Digital service taxes being applied in assorted European countries will cost Apple and other American companies millions of dollars going forward, and the US Trade Representative is considering applying trade tariffs to retaliate or discourage application.
Foreign taxes may lead to trading tariffs
Italy, Turkey, and India have followed France in levying a tax on foreign digital goods leading to further investigations by the U.S. Trade Representative's office. In November, France began taxing multinational firms at 3% of total regional revenue, a practice the USTR calls "discriminatory towards U.S. tech companies."
The USTR opened investigations under Section 301 to determine if tariffs or other retaliation would be required. In France the U.S. implemented a 25% tariff on handbags and cosmetics that was meant to go into effect on January 6, 2021. Reuters could not reach anyone for comment on the matter and could not determine if the tariff had begun being enforced.
The USTR released the findings of its Section 301 investigations stating it would not be taking additional action at this time. They will continue to evaluate all options, which could include further trade tariffs on India, Italy, and Turkey.
The USTR says the taxes from the countries are "unreasonable" and "inconsistent with principles of international taxation, including due to its application to revenue rather than income, extraterritorial application, and failure to provide tax certainty."
France sought taxes after becoming impatient with the European Union's own push for tax reform. The U.S. left talks over changes to international taxes causing the EU to push its plans for new taxes back. The new tax package seeks to curb tax abuse and anticompetitive behavior while increasing transparency.
Apple will be one of the biggest American companies hit by the digital tax changes. Apple has enjoyed tax loopholes by housing its foreign revenues in Ireland, but this practice by Apple and other companies has come under heavy scrutiny. The EU demanded $14.4B in back taxes from Apple, which has come under appeal and counter-appeal since.
Apple claims it has never performed illegal tax practices and welcomes tax reform across Europe. The USTR seeks to protect American companies that could be targeted directly by new tax law, but Apple and others seemingly have not made any moves against the digital tax laws coming down the line.
It is unclear if and when new tariffs will go into effect. Trading tariffs often cause prices to increase for customers purchasing goods from the locals being tariffed, rather than placing the burden on the seller.
Foreign taxes may lead to trading tariffs
Italy, Turkey, and India have followed France in levying a tax on foreign digital goods leading to further investigations by the U.S. Trade Representative's office. In November, France began taxing multinational firms at 3% of total regional revenue, a practice the USTR calls "discriminatory towards U.S. tech companies."
The USTR opened investigations under Section 301 to determine if tariffs or other retaliation would be required. In France the U.S. implemented a 25% tariff on handbags and cosmetics that was meant to go into effect on January 6, 2021. Reuters could not reach anyone for comment on the matter and could not determine if the tariff had begun being enforced.
The USTR released the findings of its Section 301 investigations stating it would not be taking additional action at this time. They will continue to evaluate all options, which could include further trade tariffs on India, Italy, and Turkey.
The USTR says the taxes from the countries are "unreasonable" and "inconsistent with principles of international taxation, including due to its application to revenue rather than income, extraterritorial application, and failure to provide tax certainty."
France sought taxes after becoming impatient with the European Union's own push for tax reform. The U.S. left talks over changes to international taxes causing the EU to push its plans for new taxes back. The new tax package seeks to curb tax abuse and anticompetitive behavior while increasing transparency.
Apple will be one of the biggest American companies hit by the digital tax changes. Apple has enjoyed tax loopholes by housing its foreign revenues in Ireland, but this practice by Apple and other companies has come under heavy scrutiny. The EU demanded $14.4B in back taxes from Apple, which has come under appeal and counter-appeal since.
Apple claims it has never performed illegal tax practices and welcomes tax reform across Europe. The USTR seeks to protect American companies that could be targeted directly by new tax law, but Apple and others seemingly have not made any moves against the digital tax laws coming down the line.
It is unclear if and when new tariffs will go into effect. Trading tariffs often cause prices to increase for customers purchasing goods from the locals being tariffed, rather than placing the burden on the seller.
Comments
Multinationals have a long history of unfair practices ranging from price cartels to tax avoidance and passing through all manner of anti-competitive activity.
They (along with everybody else) have been subject to changes in legislation, investigations and in some cases fines.
Increasing the tax burden on some companies in an attempt to level the playing field for everyone leaves the companies with clear options: Comply, legally challenge the changes, pull out of the affected market.
What is beyond clear is that these companies have used their size and financial clout to create an uneven playing field. It is the sole reason the EU and members states were looking to introduce these so called 'unfair' changes in the first place.
If the US decides to take action using tariffs then that is something it can do but doesn't make the root cause 'unfair' IMO.
So they used their size and financial clout to become big and create an uneven playing field? How can they used their size to become big BEFORE they are big? That makes no sense. Apple was once a small company. How did Apple use its size to become big and create an uneven playing field? Is being big evil? You imply that it is evil to be big. How big exactly do you have to be before you are evil and deserve to be punished? Is Toyota big and therefore evil? Give me a complete list of companies that are evil solely because they are big.
Although I did like your paragraph when you said that the courts are a path to resolve problems like this, and when you said that a company could pull their business out of a nation if they didn't like the nation's rules. I agree with you on that. I look forward to the day Apple pulls out of some country because the country demands, for example, that iOS be rewritten to allow any other operating system or app stores to be installed on it. To me it's ironic that the world's dictatorships are more open to Apple having a free hand in using its own proprietary operating system than the world's democratic nations are.
Apple's Irish situation is perhaps a good example here.
Tim Cook claimed Apple had 'values' and paid all the taxes it owed.
However, part of the accusation was that Apple was actually deciding itself how much to make available for taxation by using its international accounting network.
How many companies can allow themselves that privilege? What is the impact on smaller companies that swim in the same pool?
Legislation has to move with the times but is almost always late to the game. The proposed measures in this case aren't so much about companies reducing their tax bills but leveling the playing field.
Apple and many others have benefitted from being smaller companies and growing. There comes a time though when size can give those companies a distinct advantage and create an uneven playing field. Apple and most of the other high tech companies operating out of Ireland have benefited from their positions for decades. Over the years, changes have been made in legislation and Apple has modified some of its practices. The EU investigation even had a cut off date involved. It didn't go back beyond that cut off date.
It is also true that the EU targeted the biggest fish in the pool when it opened its company specific investigations. That is logical but it doesn't mean Apple was singled out. There are many investigations open for differing reasons. The moves by the EU and individual member states to increase taxation are just a result of the times and for one set of reasons.
And as I said, the options open to the affected companies are clear to them.
But for me, I'm not seeing anything 'unfair' here. If anything, IMO it was unfair that these companies have benefited for so long from the situation.
1) The Irish problem is EU's problem, not Apple's. Apple plays 100% by Ireland's tax rules (which is the reason that the country's government joined Apple in fighting against the EU), no more no less. The company doesn't get to pick, Ireland does.
2) The "international accounting framework" (whatever that means) is essentially the same that Apple has used throughout its existence in Ireland, and is perfectly legal.
3) "Leveling the playing" is weasel-talk for "please tax someone at a higher rate because they're making more money", even though they pay more in taxes at the same rate when they're making more money.
4) Your statement "Apple and many others have benefitted from being smaller companies and growing" makes absolutely no sense: what does "benefitted from being smaller companies" even mean?!
5) Going after "big fish" i.e., successful companies, is illogical unless someone wished for them to be less successful. It's just a blatant attempt to grab other people's money just because it's there.
6) "It was unfair that these companies have benefited for so long from the situation": Huh?! What situation? One that the EU just made up because it couldn't get its act together? In any event, didn't the EU lose a major case against Apple/Ireland in EU courts on the tax issue just this past September?
Enough with these money-grubbing bozos. I truly hope the USTR retaliates aggressively against the EU should they go ahead with these unfair taxes against US companies.
2. Irrelevant. I didn't mention legality. But Apple has benefitted from the situation as measures such as this have taken decades to be looked at and dealt with.
3. It's not weasel talk. It's reality. The EU and many member states want taxes to be paid in the area that generates the business, not where that business is later funnelled off and then put through Apple's accounting network.
4. Apple has benefitted from the decades of business while these issues were looked at and dealt with. Changes have been made and Apple has been forced, over the years, to change its practices to a degree. The big investigation did not cover the entire period of its business setup in Ireland. There was a cut off date. Its size also allowed it to operate for many decades and fall 'under the radar'. As we have entered the digital age and Apple (and other companies) has grown, it has become a big (but not unique) blip on the radar. It has benefitted enormously.
5. No. The EU looked at the situation in general. When deciding where to start with investigations, it chose the biggest fish first. And Apple is not the only company affected. The move was totally logical.
6. See above. The EU is getting its act together but legislation takes time to be drawn up and passed. When it is EU legislation, it gets transposed into member state law but member states can also draw up and pass their own laws.
As an aside, its worth browsing through some of the 'Paradise Papers'. Specifically those that are to do with Apple.