13/03/2024

TASK N.3
The next task is to write a report about Taxation and international relations:

During the last years we have seen a confrontation between the EU and the USA regarding
the
taxation of US IT companies in the European Union.
This task consists in writing an article about it, including the following:
- Precedents of similar conflicts between the EU and the US.
- The Trump administration and the IT companies in the EU.
- Biden Administration and the foreign policy to protect US IT in the EU.
- Consequences about this conflict.
- Current relation between the US and the EU regarding IT companies in the EU.

Navigating Trade Tensions: A Comprehensive Analysis of the EU-US

Conflict on Taxation of Tech Companies

Over the last few years, the EU and the USA have disagreed on how US tech companies
should be taxed in the EU. This is surprising since the EU and the US are usually partners
and try to maintain positive relations. This essay will explore similar disagreements from the
past, the development of the conflict during Trump's time, the steps Biden has taken, the
problems caused by this argument, and the current situation between the US and the EU.

Just a decade ago, the Obama administration, in collaboration with the EU, made continuous
efforts to promote trade between the US and the EU. A novel and revolutionary Transatlantic
Trade and Investment Partnership (T-TIP) was in the process of being negotiated (Bray
2023). T-TIP aimed to increase transparency, collaboration, and international competitiveness
on the global stage (ibid.). Unfortunately, this fell through due to persistent worries about
quality and protection in the EU (ibid.). With the arrival of the Trump administration, talks
halted, and relations between the EU and the US were negatively affected (Swanson and
Rogers 2021). It is important to note that both countries are part of the WTO, they must
respect international rules and practice non-discrimination (CRS 2022: 1). This means
governments should not favor national companies over international ones with subsidies or
other methods (ibid.).

The explicit problems between the US and EU started because the EU wanted to introduce
the Digital Services Tax (DST), affecting IT companies operating in the EU (Bray 2023). EU
countries argued that these companies avoid paying taxes to national governments, despite
profiting from their citizens (ibid.). The DST aims to collect taxes from ads placed on online

1
services (Finley 2023). The companies most affected by the tax are American tech giants like
Google, Amazon, and Facebook, which is why the American government is against these
taxes passing (ibid.). The US government argues that this goes against the non-discrimination
principles enshrined in the WTO and that American companies are deliberately being
targeted by the EU (Bray 2023).

Similar problems have occurred before, such as the ongoing debates about Airbus (European-
owned) and Boeing (US-owned) that started in the 1970s (CRS 2022: 1-2). The US appealed
to the WTO, claiming that the EU subsidizes Airbus unfairly. The WTO agreed that sanctions
should be passed. Similarly, the EU argued that Boeing was unfairly prioritized, and once
again, the WTO approved sanctions (idem: 8). This ongoing dispute was mostly settled in
2020, as both companies suffered losses due to COVID-19, promoting international
cooperation (ibid.).

As for the DST, there has not been a single agreement in all the EU on whether these
measures should be taken, so national governments went ahead and approved their policies.
For example, France, Italy and Spain have passed DST taxes (DW 2019). The reaction from
the Trump administration was very negative, as he threatened to set taxes on French goods
such as handbags and cosmetics (ibid.). He later set a 10 percent tax on aluminum and a 25
percent tariff on steel (CRS 2022: 9). The EU was, of course, negatively affected by it and
imposed a retaliatory tax on American jeans, bourbon, and other goods (ibid.).

This situation persisted until the Biden administration. When Biden came to power, he
announced retaliatory measures against EU countries like Italy, Austria, and Spain that
imposed similar digital services taxes (DW 2021). However, in an attempt to improve
American relations with the EU, Biden decided to resume talks during an OECD-led
discussion and the G7 countries (ibid.). Ultimately, the G7 agreed that tech giants should pay
more in taxes, adopting the global minimum corporate tax of 15 percent in 2023, applicable
to the 100 largest and most profitable companies (ibid.). If one of those companies is
currently paying taxes elsewhere at a lower rate, it will have to start paying more. The DST
of the European countries that applied them was rolled back, along with the aluminum and
steel taxes from the US (ibid.).

Despite the difficulties during the DST conflict, Boeing/Airbus disputes, and the 25/10
tariffs, positive agreements seem to have been reached. Currently, the US and the EU are
working hard to establish effective collaboration, especially as they try to compete against
Russia and China in the international environment. Some current problems exist between the
two countries; for example, the EU and the US are having difficulties collaborating as US
products and services fail to meet European standards (CRS 2022: 11). For example, the EU
is unhappy about US companies that do not take into account user privacy and collect their
information excessively (ibid.). Hopefully, these issues will soon be resolved, benefiting
citizens from both sides with standardization and increased quality of services and goods.

Bibliography
2
Bray, S. (2023). “In the Shadow of T-TIP: Why Congress Should Care About EU Tax and
Trade Issues in 2023”, Tax Foundation, January 12: 1.

(CRS) Congressional Research Service (2022). U.S.-EU Trade Relations. Washington D.C.:
CRS.

(DW) Deutsche Welle (2019). US threatens tariffs over French digital tax. Bonn: DW.

(DW) Deutsche Welle (2021). G7 agrees 'historic' minimum corporate tax rate. Bonn: DW.

Finley, R. (2022). “It’s Time For The United States To Move On From The Digital Services
Tax Feud”, Forbes, September 11: 3.

Swanson, A. and Rogers, K. (2021). “U.S. Agrees to Roll Back European Steel and
Aluminum Tariffs”, The New York Times, October 30: 3.