By David Meyer
December 5, 2018

Good morning. David Meyer here, filling in for Alan.

Yesterday marked yet another setback for European officials attempting to squeeze more taxes out of the big U.S. tech firms operating on their turf.

The European Commission had proposed hitting large digital services companies with a 3% tax on their revenues — not their profits. It was only supposed to be an interim measure, while the EU revamped corporate tax rules to allow profit taxation in the countries where the companies operate, rather than where they are headquartered.

But smaller, low-tax countries like Ireland, where so many tech headquarters are located because of those favorable rates, strongly opposed the Commission’s proposal. France and Germany made a last-minute attempt to rescue the plan by proposing a narrowing of the scope to focus only on digital advertising revenue—a more explicit targeting of Google and Facebook that would have let the low-tax-paying likes of Apple and Amazon off the hook—but finance ministers from around the EU still could not reach agreement on advancing the matter.

Over in the U.S., House Ways and Means Committee Chair Kevin Brady said the Europeans should abandon their plans and “continue working together through the OECD framework on the important global dialogue regarding the digital economy.” That said, the Franco-German proposal—which isn’t dead yet—would only come into force if there’s no international solution to the problem by the start of 2021 (it would expire in 2025.) Consider it a reason for the international community to get moving on the issue.

Ultimately, there is a real problem here that needs solving—borderless digital giants swallow up so much of the market that bordered economies have every reason to fear inadequate tax revenues. But it would be better for all concerned if a solution was reached at a truly international level. After all, Spain and the U.K. are already moving ahead with their own versions of the European plan, and things could quickly get very complicated for the multinationals.

Speaking of international solutions, there’s more good news regarding the U.S.-China trade truce. After instituting new deterrents to intellectual property theft, China is making more conciliatory moves: it’s confirmed the U.S.’s line on there being a 90-day negotiation period, and it’s apparently preparing to resume imports of American liquefied natural gas and soybeans. More goodwill there—how will Tariff Man respond?

More news below.

David Meyer


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