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European Tax Bureaucrats Are Raising Taxes on U.S. Companies and Undermining Tax Reform

By: Ryan Ellis

In the wake of recent tax reform in the United States, one might be tempted to think that a relatively quiet time of adjustment and digestion is ahead when it comes to U.S. companies doing business overseas. After all, a lot has changed–there’s a “deemed repatriation” tax on deferred foreign earnings, new “BEAT” and “GILTI” tax rules to prevent tax base erosion and corporate inversions, and of course a new 21 percent tax rate here at home.

But it seems that European tax bureaucrats at the OECD have not gotten the message. Our old friends in Paris are still chasing the old ghost of the big, bad American multinational with a tax base insufficiently raided by European and other developed world tax collectors.

The European Tax Grab

In April of this year, a French-led effort at the OECD will present G-20 finance ministers with a plan to increase taxes on U.S. tech companies doing business overseas. While you might think this involves just a few dot coms, their definition of “tech” is broad enough to include virtually any company doing business of any kind online–which is every company, to state the obvious.

To gain leverage in these negotiations, the European Union in March of this year will release the specifics of a tax increase plan on U.S. companies. Options the E.U. might look at include a gross receipts tax on sales, tax liability assertions that stretch the definition of “nexus” to the breaking point, and even nebulous concepts like how much value a company has extracted from European consumers. Essentially, the E.U. wants to make up tax rules as they go along, provided American companies lose.

If this sounds familiar, it’s an echo of the “base erosion and profit shifting” (BEPS) initiative of the Europeans from a few years ago. Back then, they were concerned that the U.S. tax system’s worldwide character and indefinite deferral was creating tax havens overseas. The U.S. Congress and President Trump fixed that, however, in tax reform: the deferred income was taxed via a deemed repatriation levy, we shifted to a territorial system, and base erosion measures were taken that are universally believed to be pretty airtight. Yet the Europeans still want the money, even if the original BEPS rationale is now totally gone.

The U.S. Tax Cut Giveth, and the European Tax Hike Taketh Away

If this thinly veiled stickup is allowed to proceed, it’s bad news for U.S. savers. Anyone with an IRA, a 401(k), or a 529 plan is invested in what the E.U. is calling “tech companies.” By their definition, it’s virtually the entire multinational sector. The gains we have seen since tax reform have been spectacular–according to Americans for Tax Reform, 3.5 million workers across 346 companies have received $4 billion in tax cut bonuses, 401(k) match increases, wage hikes, and other compensation increases at the time of this writing. By the time you click on that link, those numbers will almost certainly be out of date as companies announce new bonuses and investments every day.

Dan Clifton of Strategas similarly points out how the new IRS tax withholding tables rolling out this month will put $120 billion into every employee’s take home pay. Based on my analysis of the tables, a family of four making $80,000 will see their take home pay rise by almost $2000 in 2018, with further relief expected at tax time.

All of this is possible because tax relief has made it possible. If the Europeans essentially steal our tax cut by hiking taxes on the same companies we just cut taxes on, the loser will be anyone who works for or invests in these companies–which is to say all of us.

Where is the Trump Adminstration’s Treasury Department?

The U.S. is not a helpless victim here. As the most prominent member of the OECD and the G-20, we could formally veto these nefarious multi-state efforts. If the E.U. decided to pursue their end of this cash grab, we could retaliate with punitive measures already granted to us in both tax law and international conventions.

Unfortunately, career nincompoops in our own Treasury Department have hijacked events. Rather than standing up for “America first,” the deep state in our own government has cast its lot with fellow big tax bureaucrats on the other side of the Atlantic. To this point, the Trump Administration has refused to threaten, cajole, saber rattle, or even stand up rhetorically for the U.S. companies getting taken to the cleaners by the French tax collectors out to pick their pockets. What is needed is a robust response from our Treasury Department that commits to using every tool in our arsenal to protect the United States from foreign financial aggression.

The U.S. Congress, too, needs to take notice. House Speaker Paul Ryan, House Ways and Means Committee Chairman Kevin Brady, Senate Majority Leader Mitch McConnell, and Senate Finance Committee Chairman Orrin Hatch just spent years getting a very tough lifetime achievement tax reform passed. Now, while the ink is barely dry, our principal trade partners are attacking the new international tax rules the Congress just passed into law. Congress should demand that the Treasury Department stand up for tax reform and stand up for U.S. companies.

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