Digital tax threatens US-EU trade

(VOVWORLD) - One week after the French Parliament passed a bill imposing digital taxes on large tech companies including US-based firms.  Spain says it will push ahead with plans to approve its digital tax as soon as its new government is sworn-in. Other European countries will likely follow suit which would affect trade between the US and Europe.

Spain’s Acting Economy Minister Nadia Calvino said the tax decision is aimed at finding a global solution to the national economy. In January Spanish Prime Minister Pedro Sanchez proposed a draft law to slap a 3% tax on revenues generated from some services to Spanish consumers by technology giants like Google and Facebook. Mr. Sanchez failed to get the bill approved because the Spanish Parliament earlier rejected his draft budget estimate.

Taxation is not accidental

It’s not accidental that both France and Spain decided to tax technology companies with big revenues. The decision aims to reduce impacts on their countries’ economies and ensure fair, effective taxes. Technology giants earned huge revenues from providing services in France and other European countries while their tax contributions remain modest. The European Commission’s statistics show that these companies pay 14% less tax than other companies in Europe.

France’s parliament last week passed a law taxing 3% on technology companies with global revenues of at least 750 million euros or 845 million USD and revenue of more than 25 million euros in France. The new tax is expected to enable France to collect 500 million euros each year. The law will be backdated to January 1, 2019. Under the new tax bill, Spain will tax 3% on revenues of technology companies like Google and Facebook.

France is also urging other G7 countries to seek an international solution on digital tax on technology giants. But at their meeting in Paris on Wednesday, G7 Finance Ministers failed to reach a consensus.

US-EU trade tension looms

Digital tax changes by France and Spain will possibly activate a trade war between the US and Europe. Concerns increase after some other European countries plan to impose taxes on Facebook and Amazon. The UK plans to impose a 2% tax on technology companies with global revenues of more than 500 million pounds and 25 million pounds from British consumers. The draft law is waiting for further consultation. If it takes effect in April 2020, it will bring 1.5 billion pounds to Britain during the four following years. Proposals on similar taxes have been made in Austria and Italy. Other smaller EU countries like Ireland and Luxembourg are waiting for consensus within the EU.

US President Donald Trump has conducted an investigation into France’s plan based on the 1974 Trade Act which the US used to spark its trade war with China. The Act allows the US President to use tariffs as a tool against trade with other countries for damaging the US’s interests. Experts say Trump will likely do the same with European countries that impose taxes on US technology giants.