The member of EU seems to be standing firm regarding their policies to implement digital services taxes on the U.S. tech giants in the months ahead, despite President Trump warning to respond against the move.
But how long that stand-up against the U.S. can last amid the penalty in the form of tariffs on EU’s lucrative (and vulnerable) car industry is yet to be witnessed.
Finance ministers from the U.K., Italy and France have told CNBC that they might think to proceed with taxing U.S. digital tech companies if a global solution cannot be finalized.
Levies would strike U.S. tech companies such as Amazon, Facebook and Google.
Roberto Gualtieri, Economy and Finance Minister of Italy, told CNBC Wednesday that “If there will be no solution at a global level, we’ll move ahead,” but added, “we are deeply committed to finding a global solution to this problem.”
“We are engaged in the proceeding on an international basis. Our tax is designed in a way that nobody has to pay at the moment. The payment is due to happen in the following year. And it already has a sunset clause so it will automatically expire if there is a worldwide solution,” Gualtieri said.
France, in its part, has plans to impose a 3% tax on sales generated by tech companies, and the U.K. also signaled proposals to levy a 2% tax on the revenue of social media platforms, search engines and online marketplaces that develop value from the U.K. users.
Italy publicized a similar 3% tax on internet transaction as well.
What will be a global solution at the World Economic Forum?
The OECD has mediated to try and find a worldwide solution, and there are hints of a ceasefire with France already agreed to delay the implementation of its own digital tax.
Italy and the U.K. have demonstrated that their own tax proposals were either short-term or in lieu of a global solution led by the Organization for Economic Co-operation and Development (OECD).
Angel Gurria, the Secretary-General of OECD, told CNBC this week that he believed the end of the year could establish a solution.
Foreign Minister of France Bruno Le Maire spoke to reports at the World Economic Forum on Wednesday that his country had embraced a deferral of the payments to the end of 2020, but the competition was not yet over.
“The U.S., in exchange of this postponement, accepts to suspend the sanctions against France,” Le Maire said.
He suggested the OECD must ensure the creation of a fair international framework for digital taxation.
Bruno Le Maire further told reporters at the World Economic Forum that “We still require to have a clear idea of what will be the working basis at OECD. And we wish this basis to be solid, fair and credible. An optional basis wouldn’t be credible. So, there is still some work to be done.”
The U.K. Finance Minister Sajid Javid told in a program on CNBC Wednesday that his country would walk ahead with its own digital services tax in April, but it too was ready to incorporate to an international deal.
“It’s a proportionate tax, and a tax that is deliberately designed as a temporary tax,” Javid said, and added that “It will fall away when there’s an international agreement.”
Fairness and threat
The EU Commission has repeatedly stressed that it is almost unfair how tech companies are making an enormous profit from consumers within their countries but paying little taxes in comparison.
Digital taxes could provide millions of pounds and euros for European countries.
Washington has announced for now that the taxes would unfairly hit U.S. firms. Both President Trump and U.S. Secretary of State Steven Mnuchin have threatened aggressive measures.
Mnuchin told a CNBC-moderated panel at the World Economic Forum in Davos that the United States would retaliate disagreeing with any “arbitrary” and “discriminatory” digital taxes.
He also warned that those countries who impose a digital tax could “find themselves facing President Trump’s tariffs. “If people want just arbitrarily to introduce taxes on our digital firms, we will go arbitrarily putting taxes on their car companies.”
Any levies in Europe’s car sector would result in punitive for the region that derives a considerable chunk of its economic development from the industry, not to mention jobs.
According to the data made available by the European Automobile Manufacturers Association (EAMA), the turnover generated by the automotive industry represents 7% of the EU’s total GDP, and the sector employs around 13.8 million Europeans directly and indirectly, accounting for about 6.1% of all jobs in the EU.
The auto industry of Europe has already been exposed by Trump’s proposed import tariffs in 2018 when the U.S. President warned a 25% import charge on every car from the EU. However, those were put on hold while the U.S. was aiming to negotiate a trade agreement with China. A decrease in car sale and challenges hitting the greener technologies have already dug out the woes of the auto sector.
Trump has said this week that the EU is in his sights again. He spoke to CNBC’s Joe Kernen on Wednesday that Europe has been “very tough to deal with” and surely had “taken advantage” of the U.S.
He added that the EU Commission has “no choice” but to agree on a new trade deal with the America and that if there was no confirmation from Europe, he would allegedly need to “take action” in the form of “very high tariffs on their cars and other goods and services.”