Tech Groups Urge Mnuchin to Push Back on EU Digital Tax Proposal

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By Michaela Ross

Tech trade groups representing Alphabet Inc.'s Google, Apple Inc. and other companies are urging U.S. Treasury Secretary Steven Mnuchin to push back against European Commission plans to impose new taxes on digital goods and services.

The commission, the European Union’s executive arm, is slated to release legislation in late March that would raise taxes on tech companies and others creating or selling digital goods and services in EU member states. U.S. tech associations are turning to the Trump administration for help in working against the move.

“It is imperative the United States express its concern with the direction of the work and its possible impact on the global business climate in general and digital commerce in particular and forcefully engage in any multi-lateral discussions,” ITI, Internet Association and seven other trade and tax groups said in a Feb. 16 written letter to Mnuchin released Feb. 20.

Tensions between U.S. tech giants and some European authorities have increased in recent years over charges that the companies are maneuvering profits to avoid paying taxes in EU member states with higher tax rates. The proposals in the prospective legislation include a temporary tax on internet publishers’ advertising revenue, a turnover tax on digital goods and services, and a tax based on where companies do business rather than where profit is reported.

A Treasury Department spokesperson did not immediately respond to an emailed request for comment. But it’s unclear at best whether Mnuchin could sway European regulators.

Pierre Moscovici, European commissioner for economic and financial affairs, said in a speech the new taxes are inevitable.

“It is happening,” Moscovici said at an EU internet conference Feb. 20. “Digital taxation is no longer a question of ‘if’ — that ship has sailed.”

The EU’s corporate tax rules are outdated for the digital age and focus too heavily on where companies have a physical presence, not on where they’re creating value and generating profits, Moscovici said in prepared remarks.

Moscovici cited a social media company in his prepared remarks that he said makes over half of its revenue from its international business but pays only 5 percent of its taxes to foreign governments. Moscovici didn’t name the company.

‘Ring-Fence’ Raises Eyebrows

The commission’s efforts separate or “ring-fence the digital economy for tax purposes,” the groups said in their letter to Mnuchin. The commission’s digital taxation would also hurt non-tech sectors that rely on data flows, the groups said.

“These efforts are coupled with rising rhetoric targeting U.S. companies and clear statements of intent to raise revenue from U.S.-based firms,” the groups said.

The Organisation for Economic Co-operation and Development (OECD), which sets international standards on taxation, is working “very closely” with the commission on the tax proposals and is planning to release its own analysis in April, Moscovici said. The OECD report is scheduled for release during the upcoming economic conference for the G-20, an international group of major global economies.

The tech, tax and trade groups support a 2015 OECD report on digital taxation that said it is “not feasible to ring-fence the digital economy from the rest of the economy for tax purposes.” Still, the same report acknowledged digital business models could erode traditional tax bases.

“We support and encourage multi-lateral discussions at the OECD and G20 levels on matters of cross-border taxation precisely because of Treasury’s strong engagement in shaping policies impacting our businesses,” the groups said in their letter.

Among the other groups signing on to the letter: the National Foreign Trade Council, the United States Council for International Business, the Software Finance and Tax Executives Council, the Progressive Policy Institute, the National Taxpayers Union, the Taxpayers Protection Alliance, and IT trade group CompTIA.

To contact the reporter on this story: Michaela Ross in Washington at mross@bloomberglaw.com

To contact the editor responsible for this story: Roger Yu at ryu@bloomberglaw.com

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