In the face of declining tax revenues due to COVID-19-related economic challenges and resulting spending efforts, it turns out that American progressives have company in their efforts to slap new taxes on American businesses. European governments are also aggressively seeking out American targets for taxes to ease their budget woes.
France, in particular, is putting new emphasis on a long-simmering feud over proposed European “digital taxes,” which assess a surtax on (mostly U.S.-based) tech firms. The country is now pushing the issue by beginning to send notices to American tech firms demanding payment on its digital taxes.
This comes despite still-pending discussions to resolve this issue in the Organization for Economic Cooperation and Development, and a prior agreement to table it for the year. In response, Democratic Oregon Sen. Ron Wyden has threatened retaliation, hopefully signalling that the incoming Biden administration will not take this blatant overreach lying down.
After all, it won’t be the only European tax grab against American companies that Biden will have to face as president. The European Union, for its part, is going after American companies’ revenue in a more roundabout fashion, planning to pay for a €15 billion budget increase through competition fines. These fines have not yet been assessed, mind you — the EU just happens to know that €15 billion worth of fine-worthy activity will take place this year.
Legally dubious workarounds aside, however, the effort for digital taxes is insidious enough in its own right. Advocates of such taxes will say that digital firms don’t get taxed at the same rate as traditional firms, but past analyses have found that this is not the case. Rather, it is a naked attempt to raise revenue from American businesses that European governments need not feel responsible for taxing fairly and responsibly (didn’t we already settle this issue two and a half centuries ago?)
Should the Biden administration prove willing to fight to protect American interests and to move toward a ceasefire of sorts, it will likely find bipartisan congressional support for the effort. Wyden, the top Senate Finance Democrat, has teamed up in the past with the Republican Senate Finance Chairman, Chuck Grassley, to combat European digital tax efforts in the past.
France’s demands for tax payments due later this month come at an inopportune time. Biden will not be sworn in as president until January 20, and it’s likely that his Treasury Department will not be fully staffed until spring 2021. Meanwhile he will need to address the Trump administration’s threat of $1.3 billion in tariffs on French goods in retaliation for French digital tax efforts back in July. If a full-scale trade war is to be avoided, it will be incumbent upon Trump and Biden officials alike working together to facilitate a coherent American strategy on this issue abroad.
Protecting American businesses from unprovoked foreign tax aggression should not be a partisan issue, and hopefully Biden’s trade team will work quickly to resolve this thorny issue. The last thing American businesses facing a difficult domestic economy need is expensive European tax bills on top of what they pay already.
Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.