Andreas Hellmann & Kevin Adams

Digital Taxes Target American Companies in Europe and Around the World

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Posted by Andreas Hellmann & Kevin Adams on Tuesday, July 23rd, 2019, 2:02 PM PERMALINK

France has been in the headlines in recent weeks due to its approval of a digital services tax (DST) that mainly hits American technology companies such as Google, Amazon, and Facebook. The bill now awaits President Macron’s signature, who has signaled his support.

But France isn’t the only country that has chosen to impose or signaled its intention to impose a DST. After the European Union scrapped its plans for an EU-wide DST, several European countries have decided to take unilateral action in what will ultimately end in a complex web of varying tax rates and applicability requirements. As the maps show, a number of countries, both in Europe and around the world, have either implemented or plan to implement a DST on their own instead of waiting for an international consensus.


Trump Administration Strikes Back Against French Digital Tax

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Posted by Andreas Hellmann & Kevin Adams on Thursday, July 11th, 2019, 11:28 AM PERMALINK

Just hours after France became the first major economy to implement a digital services tax (DST) on American companies, U.S. Trade Representative Robert Lighthizer announced that the United States would investigate the proposal. The main concern that Lighthizer expressed in a statement Wednesday is that the tax would unfairly target American companies such as Amazon, Facebook, and Google.

Lighthizer will be able to investigate for up to one year to determine if the tax is explicitly discriminating against and harming U.S. technology companies. This is authorized under Section 301 of the U.S. Trade Act, the same vehicle used by the Trump administration to impose tariffs on China.

The French DST is a 3% tax on the revenues of technology companies that earn at least 750 million Euros in worldwide revenue, of which at least 25 million is earned in France. The law was written in order to exempt smaller and French companies and only target the big American tech giants. The European Union previously considered a digital services tax to apply across all of its member states but scrapped the idea after opposition from the Nordic and other smaller low-tax EU member countries.

Praise came from both sides of the aisle on the administration’s move to launch a Section 301 investigation. Senator Chuck Grassley (R-IA) and Senator Ron Wyden (D-OR), the leaders of the Senate Finance Committee, released a joint statement applauding the decision. They also noted that “the United States would not need to pursue this path if other countries would abandon these unilateral actions and focus their energies on the multilateral process that is underway at the Organisation for Economic Cooperation and Development.”

The move by the Trump administration is to investigate the French DST under Section 301 is a smart one. If the French tax was allowed to be enacted without repercussion, it would send a signal to the world that American companies are open for pillaging. This strong, measured response from the administration serves as a warning that the United States will not tolerate the exploitation of its businesses by foreign tax authorities. 

Photo Credit: Amaury Laporte


France Moves Forward with its Digital Tax to Attack American Companies

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Posted by Andreas Hellmann & Kevin Adams on Tuesday, July 9th, 2019, 1:06 PM PERMALINK

Last week the Senate of France reached a compromise with the legislature’s lower chamber, the National Assembly, on its version of a digital services tax (DST). This unilateral move from France comes after the European Union (EU) wasn’t able to agree on its own DST proposal that would have applied in all EU member states. 

The main point of contention between the Senate and the National Assembly revolved around the concept of state aid. Under Article 107 of the Treaty on the Functioning of the European Union, a member state may not grant state aid or use state resources to distort competition or trade in the EU marketplace. There are certain exceptions to this standard, but to meet these exceptions a government must notify the European Commission and await its notification before implementation of any proposed law. 

The French Senate introduced language into the bill passed by the National Assembly that would “oblige the government to give Parliament the reasons for its refusal to notify the digital services tax to the European Commission as state aid.” This language was ultimately adopted in the compromise bill. 

The concern among the Senate is that a DST proposal will face a legal challenge arguing it is discriminating against large companies due to the tax being a tax on turnover and having a revenue threshold. The French proposal, which is broader than the failed European Commission proposal, is a 3% tax on revenue from companies with more than 750 million Euros in worldwide revenue, of which at least 25 million must be generated in France. The challenge would likely be in terms of the tax being state aid to companies that generate less than the 750 million Euros threshold. 

Make no mistake that the French digital tax is discriminatory, whether the European Commission rules it is, or it is not in the EU marketplace. By using revenue as a proxy for nationality, France is looking to pillage the accounts of American tech companies in order to get their “fair share” of tax. While the OECD is working to develop a global consensus on the issue, the French have decided to go ahead on their own, risking worsening the already bad French-American relationship and a massive blowback on future trade.

Photo Credit: Fondapol Bruno le Maire chez Parisien


OECD Hits American Tech Companies with Digital Tax Proposal

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Posted by Andreas Hellmann & Kevin Adams on Tuesday, June 11th, 2019, 2:55 PM PERMALINK

Ahead of this month’s G20 Summit in Japan, the OECD has introduced its roadmap to tax digital companies, the “Program of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalization of the Economy.”

This framework sets the stage for the OECD to rewrite decades of international tax rules and norms to implement a digital tax and to attack American tech companies. 

When many Nordic countries and historically low tax countries like Ireland and Luxembourg came out against the European Union’s digital tax proposal, any hope of a unanimous agreement at the Economic and Financial Affairs Council was killed. For many, this was a sign of hope that Europe’s digital tax, which would target mainly American technology companies, was going to be shelved indefinitely. 

The OECD program is divided into two “pillars.” In the first , the OECD lays out several proposals that would allocate more taxing rights to the jurisdiction of users in situations where value is created by a business activity through participation in that jurisdiction that is not recognized in the current framework for allocation profits. This includes remote participation, which is the true target of the proposal.

For example, if a company is located in the United States and has advertisements on its website that can be accessed in France, these proposals would allow France to tax the company even though it has no physical presence in France. 

The very dominant high tax, high spending  European OECD member countries are strongly pushing for this change, as they need massive tax revenue increases to fund their bloated welfare systems and of course it is easier to tax companies or people who can't vote for or against you. To illustrate the absurdity of this proposal and the dramatic effects on the principle of value creation and the permanent establishment rule, let's look at French wine. 

Under the old rules, the value of this product is created in France, where the winemaker puts all his knowledge, effort and experience in making the best wine possible. Under the new rules, the value will be created when the consumer drinks the wine. 

The OECD proposal develops new concepts of “remote taxable presence” and “taxable income sourced in” (a jurisdiction) that drastically redefine the decades-old concept of nexus to now not require a physical presence. 

A company based in Ireland but that is accessed in EU countries would now potentially be subject to 28 different taxing authorities. This will surely drive up compliance costs and open the door for each country seeking to get its “fair share” of tax revenue. The OECD should operate within the current legal framework, not rewriting the rules to fit an agenda.

Now it is of the utmost importance for countries opposing a Digital Services Tax, dramatic changes to the international tax system and in favor of tax competition to make their voices heard louder than ever, and in the U.S., the Trump administration must further step up its opposition.

Photo Credit: OECD

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