US President Donald Trump has threatened to impose “100 percent tariffs” on any country with a digital services tax.
The EU is currently considering new ways to raise money. An EU-wide digital services tax is one option being discussed.
“Numerous European Countries have been discussing the imminent implementation of a Digital Services Tax on American Companies. Some of these Countries are close to actually doing this. Please let this statement serve to represent that any Country that imposes such a Tax will immediately be met with a 100% TARIFF on any and all Goods sent to the United States of America,” Trump wrote on social media.
“This TARIFF will supersede Trade Deals made with the Country, whether implemented, signed, or not,” he warned, a reference to the EU which only completed implementing the US-EU tariff deal yesterday.
That deal, agreed between Trump and European Commission President Ursula von der Leyen last summer, saw the EU commit to paying a blanket 15 percent tariff on nearly all exports to the US.
In return, the EU extracted the promise that it would be sheltered from any of Trump’s other tariffs that he came up with.
That now looks like it could be in jeopardy.
In response to Donald Trump’s threat, a European Commission spokesperson said:
“The EU and its member states have the sovereign right to regulate economic activities on their territory, in line with our democratic values and international commitments.
Any taxes are non-discriminatory by design and apply equally to all large companies, regardless of their origin.
Unilateral measures targeting such legitimate policies are unjustified. If pursued, the EU will respond swiftly and decisively to defend its rights and regulatory autonomy.
The EU has consistently supported a global solution to the fair taxation of the digital economy, in line with the G7 finance ministers conclusions. That remains our preferred path, and we are ready to engage constructively to get there.”
Since Ireland hosts European headquarters for many US tech giants it is hardly surprising that the Irish government vehemently opposes the idea of digital taxes.
But the EU urgently needs to find new ways to raise money if it is going to pay for key commitments in its next long term seven year budget which has a draft total of €2 trillion.
Member states also know that they soon need to start repaying Next Generation EU, a huge €750 billion worth of loans and grants handed out after the covid crisis to try and get Europe back on track.
The digital services tax was originally conceived as an G20 idea that would have seen major economies impose the same level of tax on digital companies, but it was never enacted.
The European Commission proposed an EU digital services tax of 3 percent in 2018, but it too did not become a reality.
Instead, just a few countries including the UK, France, Austria and Spain went ahead with various versions of digital taxes.
If the EU was to go ahead with a tax covering the entire European Union, it is estimated that it could bring in more than €40 billion per year, the equivalent of about 10 percent of the EU’s total spending needs.