A proposal released today from the EU’s European Commission to burden digital business activities with a harsh new tax regime will, if put into force, have “severe consequences for worldwide tax administration, the global economy, and international relations.” That’s the assessment of the National Taxpayers Union, a citizen advocacy organization concerned with the impact of this scheme not only for the United States, but also for taxpayers around the world. NTU President Pete Sepp offered the following statement in reaction to the EU blueprint:
“Creating a set of tax rules that is ungrounded in solid principles, complex in its implementation, and discriminatory in its application should be troubling to all taxpayers, wherever they reside. Slapping a special tax on vaguely-defined financial flows, targeting companies based on worldwide revenue, and conjuring up a new definition of physical presence for tax purposes are all hallmarks of an arbitrary approach that violates sound tax administration and threatens to raise tensions among countries that should be engaging in mutually beneficial commerce. If these ill-advised policies can be inflicted upon any group of taxpayers, no one is safe.
Rather than attempting to fit this cumbersome ‘patch’ on corporate tax policy, European Commission officials should have heeded their colleagues at the Organization for Economic Cooperation and Development, which urged a go-slow strategy due to the complexity of the issues involved. Instead, they would rather chase short-term revenues that will ultimately harm consumers, shareholders, and workers. The compliance costs associated with this framework could, on their own, extract hundreds of millions more from businesses and the people who buy from, invest in, or hold jobs with them.
The premises that fueled this blueprint can and should be questioned. A recent study from the European Centre for International Political Economy cleared up several misconceptions driving the Commission’s plan: EU members’ corporate tax collections have actually grown over 40 percent faster than their economies over the past two decades, and by ECIPE’s measurement, the five-year average effective corporate tax rate of digital group corporations is just 0.3 percentage-point lower than traditional companies on the Euro Stoxx 50.
Despite the EU plan’s troubling implications for the rule of law and citizens’ well-being everywhere, it is especially punitive toward U.S.-based innovators in digital advertising, data, and other services. EU officials admit that the largest proportion of companies hit by the new tax will be American firms. Our leaders on both ends of Pennsylvania Avenue must now publicly deliberate and proceed with steps that will protect taxpayers both here and abroad. At the same time, conscientious public officials and citizen groups in other nations – regardless of their ideology or aims – must stand up for the rights of taxpayers as well. The EU’s proposal must not become a precedent.”
NTU has previously recommended a number of steps that U.S. officials could take in response to the aberrant tax policies of the EU, other international bodies, and their member states, including Congressional hearings and resolutions expressing opposition to the arbitrary tax administration, and Executive Branch communications making clear to other countries the tools at its disposal (e.g., Section 891 of the Tax Code). The organization recently sent Secretary Mnuchin a letter that further delineated these steps. NTU is also a founder of World Taxpayers Associations, a consortium of some 60 taxpayer advocacy groups across the globe.