On Monday 11 December, the French, German, Italian, British and Spanish finance ministers joined forces to notify the American Secretary of the Treasury, Steven Mnuchin, of their concerns over the tax reform taking shape in the United States.
In their letter, the five ministers stressed that although establishing a modern, competitive and solid taxation system is again essential pillar of a state's sovereignty, it is important that the American government exercises its rights in the field of taxation in a way that adheres to the international obligations it has signed up to. “The inclusion of certain less conventional international tax provisions could contravene the US’s double taxation treaties and may risk having a major distortive impact on international trade”, they add.
The Europeans have three provisions in particular in their sights. Firstly, the 20% tax on payments to foreign companies, unless these foreign companies agree to consider that they have a permanent establishment in the United States. This is tantamount to recognising that they should be subject to US corporate tax for the share of the profits they make in that country, a source in the French Ministry of the Economy and Finance (Bercy) explained. The European ministers consider that such a measure would run counter to WTO rules and the bilateral tax treaties.
Bearing in mind the fact that half of transatlantic trade constitutes intra-group trade, this could seriously hinder trade and investment flows between our two economies, they add.
BEAT. Unlike what its name suggests, 'Base erosion and anti-abuse tax' (BEAT) would seem to do very little to tackle the erosion of the American tax base, the ministers state. Cross-border intra-group financial transactions would not be considered tax-deductible and would attract a rate of 10%. This would particularly harm banks, the ministers warn. “It is an incentive to do business with a local partner instead. This is discrimination”, our Bercy source went on to explain.
Finally, the last provision of concern to the Europeans is the proposed preferential regime for the sales and licensing of American goods or services outside the US, which would benefit from a rate slashed to 12.5%. An incentive of this kind would effectively subsidise exports, the ministers complain.
In early December, the Ecofin Council discussed the embryonic American reform. The five countries took the floor, with the exception of Germany. But apart from the other four, only Sweden is reported to have voiced any concerns. The Commission has been asked to keep an eye on the reform, which it has pledged to do. (Original version in French by Élodie Lamer)