EU Finance Chiefs Ask Commission to Monitor U.S. Tax Reform

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By Joe Kirwin

EU finance chiefs Dec. 5 launched a European Commission review of U.S. tax reforms over concerns the changes may be “discriminatory” and conflict with World Trade Organization rules.

French Finance Minister Bruno Le Maire, at the finance chiefs’ monthly meeting, cited concerns with potential double taxation in the U.S. legislation. The U.S. Senate passed its version of a bill ( H.R.1) early Dec. 2, and now must reconcile differences with the House. The bill proposes a 20 percent corporate rate.

“There are some concerns, notably around double taxation and conformity with international tax agreements such as bilateral tax treaties,” a French government official working in the cabinet of Le Maire told Bloomberg Tax in a Dec. 5 email, shortly after EU finance ministers concluded their meeting. “Many member states agreed it is important to look into the issue and have a European position. The Commission will now study the issue in more detail.”

During the discussion among EU finance ministers, Sweden, Germany, the U.K. and Italy also raised concerns about U.S. tax reform, according to an EU diplomat who spoke to Bloomberg Tax on condition of anonymity.

Spanish Finance Minister Luis de Guindos told journalists Dec. 4 that there “are some elements of concern” about the pending legislation, including possible “discriminatory measures,” and the commission is to monitor the process and report back after the U.S. legislation has been finalized.

“There are concerns about compliance with tax treaties,” Guindos said. “There are concerns about the possibility that some parts of the reform violate the rules of the World Trade Organization.”

Officials didn’t cite specific language they’re worried about in the House and Senate tax bills.

However, U.S.-based Manal Corwin, a former Treasury official now with KPMG LLP, said three provisions appear to be “pressure points” of concern.

In the Senate measure, those provisions are a base erosion and anti-abuse tax and a deduction for foreign-derived intangible income.

Under language in the House bill, companies would face a 20 percent excise tax on some payments to foreign affiliates, but the affiliate could avoid the tax by paying U.S. income tax on the payments.

U.S. in Line With International Standards?

Luxembourg Finance Minister Pierre Gramegna told journalists at a Dec. 5 news conference that the main concern is whether there is a “rhyme and reason” to the legislation and whether it “conforms with international tax standards. Most important of all is that we have to determine whether or not the changes will result in unfair competition.”

The European Commission official, speaking to Bloomberg Tax Dec. 5 after the EU executive body was tasked to monitor the U.S. tax reform, said any overhaul “should be non-discriminatory and in line with international commitments, notably those of the World Trade Organization.”

The commission official, who spoke on the condition of anonymity, also said that “as a very influential economic power, the U.S. must play a central role in the global fight against tax avoidance just as the EU is doing.”

Tax Haven Concern

Some countries in the bloc, as well as those that are members of the European Parliament and the European Commission, are already concerned the U.S. has become a tax haven. The concerns revolve around the failure of the U.S. to adopt the OECD’s common reporting standard on bank information exchange, as well as rules in some U.S. states such as Delaware, which permit beneficial owners of companies to remain anonymous.

The concerns about the CRS and the laws in Delaware are the main reasons some EU politicians and tax advocacy groups insist the U.S. should be on an EU tax haven blacklist that was adopted Dec. 5.

The EU list “is politically biased as relevant financial centers like the United States of America are missing,’' said Sven Giegold, a German member of the European Parliament from the European Green Party.

Impeding Progress on Digital Taxation

There is also concern in the EU that the U.S. is impeding progress in the OECD to finalize terms for digital taxation as part of base erosion and profit shifting reforms. These concerns are related to legal action tax authorities in some EU member states have taken to ensure that large U.S. tech companies such as Facebook Inc., Google parent Alphabet Inc. and Amazon.com Inc. pay their fair share of taxes, as well as European Commission accusations that companies such as Apple Inc. have received illegal state aid in the form of tax breaks.

The concern that large U.S. tech companies are not paying their fair share of tax also is a major reason EU finance ministers gave the green light Dec. 5 for the commission to consider new legislation that could include an “equalization tax” on the turnover of internet companies instead of on their profits.

With assistance from Alison Bennett in Washington.

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

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

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