California Governor Avoids Criticizing U.S. Tech Giants on Tax

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By Joe Kirwin

California Gov. Jerry Brown said he doesn’t know how a digital turnover tax on internet companies, such as one the European Union is considering, would work.

In a Nov. 8-9 visit to the EU capital in Brussels, Brown also refused to criticize the tax policies of Silicon Valley companies such as Facebook Inc. and Alphabet Inc. subsidiary Google, despite numerous EU member states insisting they don’t pay their fair share of taxes.

That criticism increased in recent days after revelations in the Paradise Papers banking leaks that Apple has moved billions of dollars to the offshore financial center on the island of Jersey to avoid paying tax in the EU.

“These are my constituents,” Brown told Bloomberg Tax in an interview Nov. 9. “I am not in a position to say anything on this issue.”

Brown (D) also said the issue of Silicon Valley company tax policies had not been raised during visits to the European Commission and the European Parliament on Nov. 8 .

A day prior to his visit, European Competition Commissioner Margrethe Vestager announced she is re-opening the tax probe into Apple and accused U.S. tech companies, including Google and Facebook, of pursuing anti-competitive policies.

“I have been asking for an update on the arrangement made by Apple, the recent way they have been organized, in order to get the feeling of whether or not this is in accordance with our European rules, but that remains to be seen,” Vestager said at a Nov. 7 Web Summit in Lisbon. She added that the request was “just to get information” and that “it remains to be seen if we will open more cases after the Paradise Papers.”

Apple Ruling

The European Commission ruled in 2015 that the Irish government had to collect $13.5 billion in back taxes from Apple because Vestager said a tax ruling Ireland had with the Silicon Valley company violates EU state aid rules. The Irish government is challenging the European Commission decision in the European Court of Justice.

Asked by the European Commission why it didn’t raise the issue of digital taxation on internet companies with Brown during his Nov. 8 visit, Ricardo Cardoso, the spokesman for Vestager, told Bloomberg Tax that the California governor’s visit was strictly about the issue of climate change and “not tax issues.”

EU Considers Equalization Tax

EU finance ministers are currently considering various digital taxation options. Countries led by France are insisting the EU adopt a temporary “turnover” tax on the internet companies to ensure that taxes are paid where profits are earned. French Finance Minister Bruno Le Maire insisted as recently as Nov. 7, when EU finance ministers met for a meeting of the Council of Economic and Financial Affairs, that it was essential the EU adopt in 2018 a digital tax on the “internet giants.”

According to confidential documents seen by Bloomberg, EU member states are considering conclusions to be finalized in December that will back the use of a temporary turnover or “equalization” tax.

“A temporary measure chosen upon further examination could be considered provided that it is applicable only until the preferred policy response has been implemented and does not have negative impacts on EU businesses and customers,” the document said.

It added that the temporary measure “could be an equalization levy as outlined in the OECD BEPS Action Report (2015) that is based on the turnover and remains outside the double tax conventions concluded by member states.”

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj in London at psukhraj@bna.com

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