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Europe digital tax and Trump’s tariff threats

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France’s President Emmanuel Macron and U.S. President Donald Trump at the G-7 Summit in Biarritz, France on August 25, 2019

Jeff J Mitchell | Getty Images

European leaders appear to be standing firm on plans to impose digital services taxes on U.S. tech giants in the coming months, despite President Trump threatening to retaliate against the move.

How long that resistance against the U.S. can last amid the threat of retaliatory tariffs on Europe’s lucrative (and vulnerable) car industry is yet to be seen.

Finance ministers of the U.K., France and Italy have signaled to CNBC that they plan to proceed with taxing U.S. digital tech firms if a global solution cannot be found. Levies would hit U.S. tech firms such as Facebook, Amazon and Google.

Italy’s Economy and Finance Minister Roberto Gualtieri told CNBC on Wednesday: “If there will not be a solution at a global level, we will go ahead,” but added that “we are very committed in finding a global solution to this problem.”

“We are engaged in the process on a global basis. Our tax is designed in a way the nobody has to pay now – the payment is due to happen the following year. And it already has a sunset clause so it will automatically expire if there is a global solution,” he said.

Global solution?

The OECD has intervened to try and find a global solution and there are signs of ceasefire with France already agreeing to delay the imposition of its own digital tax.

The U.K. and Italy have signaled that their own tax plans were either temporary or in lieu of an international solution led by the OECD. For its part, the OECD’s Secretary General Angel Gurria told CNBC this week that he believed a solution could be found by the end of the year.

French Finance Minister Bruno Le Maire told reporters at the World Economic Forum on Wednesday that his country had accepted a postponement of the payments to the end of 2020, but the battle was not yet over.

“In exchange of this postponement … the U.S. accepts to suspend the sanctions against France,” Le Maire said.

But, he said the OECD needed to lead the creation of an international framework for digital taxation that was fair.

“We still need to have a clear understanding of what will be the working basis at the OECD. And we want this basis to be solid, credible and fair. An optional basis would not be credible,” Le Maire said. “So, there’s still some work to be done.”

On Wednesday, U.K. Finance Minister Sajid Javid had told CNBC that the U.K. would go ahead with its own digital services tax in April, but that it too was ready to subsume that to an international deal.

“It is a proportionate tax, and a tax that is deliberately designed as a temporary tax,” Javid said before adding, “It will fall away when there is an international agreement.”

Fairness and threat

European countries have long said it’s unfair how tech giants make huge profits from consumers within their countries, but pay little taxes in comparison. Digital taxes could raise millions of pounds and euros for European countries.

But Washington has said that the taxes would unfairly target U.S. firms and both Trump and U.S. Treasury Secretaary Steven Mnuchin have threatened retaliatory measures. On Wednesday, Mnuchin told a CNBC-moderated panel in Davos that the U.S. would retaliate against “arbitrary” and “discriminatory” digital taxes.

He warned that those countries who introduced a digital tax could “find themselves faced with President Trump’s tariffs. “If people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on car companies.”

Any tariffs on Europe’s car industry would prove punitive for the region that derives a good chunk of its economic growth from the sector, not to mention jobs.

According to the European Automobile Manufacturers Association (EAMA) the turnover generated by the automotive sector represents 7% of the EU’s total GDP and the industry employs 13.8 million Europeans directly and indirectly, accounting for 6.1% of all EU jobs.

Europe’s auto industry has already been threatened by Trump’s planned import tariffs (in 2018, he threatened a 25% import tariff on every car from the EU), although those were put on hold while the U.S. was focused on negotiating a trade deal with China. Falling car sales and challenges toward greener technologies have already deepened the woes of the auto sector.

Now, Trump has signaled this week that the EU is in his sights again, telling CNBC’s Joe Kernan Wednesday that Europe has been “very tough to deal with” and had “taken advantage” of the U.S.

He added that the EU has “no choice” but to negotiate a new trade deal with the U.S. and that if there was no deal, he would need to “take action” in the form of “very high tariffs on their cars and other things.”

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