International Tech Policy

WSJ, July 5, 2020: Tech Giants to Face EU Legal Push on Content, Competition, Taxes

Big tech companies including Google parent Alphabet Inc., Amazon.com Inc. and Facebook Inc. face a swath of proposed European regulations aimed at curbing their alleged anticompetitive behavior, making them pay more taxes and compelling them to shoulder more responsibility for illegal content on their platforms, said a top European Union official.

Margrethe Vestager, the EU’s digital-policy and antitrust czar, detailed for the first time a comprehensive plan of how she aims to rein in U.S. tech giants, using a package of initiatives that the EU has begun to outline individually in recent weeks. The aim is to clearly delineate new legal boundaries for tech companies, rather than just apply existing laws covering fields such as antitrust regulation.

“It’s a full complex of things. It’s not done with just one piece of legislation,” Ms. Vestager said in an interview with a small group of reporters. Ms. Vestager—who in her prior term as European competition commissioner levied record fines on Google and ordered Apple Inc. to pay Ireland $14.5 billion in allegedly unpaid taxes—last year was promoted to vice president of the European Commission, the EU’s executive arm, in charge of competition and new legislation for the digital sector.

“After the first mandate and the first specific competition cases, what I have seen very clearly is that we need rigorous competition-law enforcement, but we also need regulation,” she said.

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The potential UK policy of requiring large tech companies to share data with smaller tech companies seems like a good start:

Ms. Vestager’s regulatory plans would keep the EU at the vanguard of a movement to more tightly regulate tech companies—though other parts of the world are increasingly joining the debate. The EU in 2018 put into force a data-protection regime known as the General Data Protection Regulation, or GDPR, which was imitated in several other jurisdictions and inspired California’s data-protection measures that took effect in January. More European regulation in the digital sector is likely to have an impact beyond the Continent, with other jurisdictions following suit. The U.S. Justice Department last month proposed rolling back rules that limit companies’ responsibility for what people post on their platforms, and the U.K.’s antitrust authority has proposed creating a special antitrust unit focused on digital markets, which could have powers potentially including ordering large companies to share data with smaller ones.

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Another piece of legislation would list prohibited practices. It is aimed at stopping platforms from leveraging their dominance to quash smaller rivals and is inspired by the three EU antitrust cases against Google that brought fines totaling more than $9 billion.

Separately, Ms. Vestager said in the interview that she is seeking enhanced investigative powers that would allow her to order all companies in a certain sector to change their behavior so they don’t monopolize a particular market. This would “prevent new gatekeepers from arising, so we can still have the benefit of competition in the market,” she said.

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In taxation, the EU is considering establishing its own digital tax now that the Trump administration and European countries including France have reached an impasse in international talks on the topic. The European Commission, like several European countries, has said over the past year that if international talks fail by the end of this year, the bloc will put forward its own digital tax proposals.

The EU has proposed establishing a dedicated technology-and-trade dialogue channel with the U.S. to iron out such issues. “We will do what we can in order to make that happen,” she said.

Ms. Vestager said a digital tax is justified by fairness. “So many businesses have to work very hard to make a profit, and from that profit to then pay taxes,” she said. “They should not be met with competitors for capital, skilled employees and customers who do not contribute to society. That has nothing to do with where you come from, it has to do with doing business in an equal manner.”

WSJ, June 18, 2020: After U.S. Declares Impasse on Digital Taxes, Europe Continues Push

European officials are pushing forward with plans to tax tech giants after the U.S. declared international talks on the issue to be at an impasse, raising the specter of trans-Atlantic trade conflict.

French Finance Minister Bruno Le Maire said Thursday that France will resume collecting a 3% tax on revenue from digital services if countries from around the world can’t agree on a system for reallocating tax revenues from tech giants by the end of 2020.

Separately, Paolo Gentiloni, the European Union’s economy commissioner, said that the bloc will also pursue its own digital-tax proposal next year if the multinational talks fail.

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“Whatever happens, we will apply a tax to digital giants in 2020,” Mr. Le Maire said on French radio. He added that the U.S. was the only country to oppose a process that he described as “within a few centimeters of an accord.” The comments come after U.S. Treasury Secretary Steven Mnuchin sent his counterparts in France, the U.K., Italy and Spain a letter explaining the U.S. opposition to elements of the talks. In the letter, Mr. Mnuchin says the U.S. “is unable to agree, even on an interim basis” to any tax changes that would fall hardest on U.S.-based companies, according to a copy of the letter seen by The Wall Street Journal.

Mr. Le Maire described the letter as a “provocation for everyone who was negotiating in good faith,” and said that the four countries had sent a joint response urging an international agreement on “fair taxation of digital giants” as soon as possible.

The trans-Atlantic tit-for-tat throws the latest wrench in the fragile talks over digital taxes. More than 100 countries have been trying for years to hash out new rules about how to apportion the profits of multinational companies, working through the Paris-based Organization for Economic Cooperation and Development, a club of 37 advanced economies.

Current rules generally allocate corporate profit for tax purposes based on where value is created. But modern multinationals—particularly ones with digital offerings—can sell their products across borders in ways that leave little taxable profit in a country where those products are consumed.

Many big European countries say that tech companies should pay more taxes in the countries where their products are consumed, something that could boost their tax revenues by billions of dollars. But the U.S. has opposed any solution that is too targeted at tech companies, where it has more to lose.

As international talks have dragged out, several countries, starting with France, but followed by the U.K., Italy and Spain, have been pursuing their own targeted taxes on digital companies, such as Alphabet Inc. and Facebook Inc. The U.S. has in turn threatened to impose retaliatory tariffs on any country that implements such a tax. Mr. Gentiloni said the EU would stick together in the face of any such move, raising the prospect of a new trade conflict between the world’s largest economies.

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Earlier this year, France agreed with the U.S. to suspend collection of its digital tax, after the U.S. moved to make good on such a threat. But France never withdrew the tax and officials have repeatedly said the country would begin collection again if there were no OECD deal by the end of 2020.

Tech companies, for their part, have opposed national digital-services taxes like France’s, but have supported the OECD process, arguing that they would like to avoid a patchwork of overlapping national initiatives.

There is one element of the OECD talks where the Europeans and Americans are “much closer to an agreement,” according to Mr. Mnuchin’s letter: the creation of global minimum levels for corporate taxation. Those talks are proceeding along a parallel track at the OECD.

The U.S. adopted a form of minimum tax in 2017 when it overhauled its tax system. In general, companies that pay less than 10.5% in taxes on their foreign operations owe money to the U.S., though the details can vary greatly by company. One big question is whether that U.S. tax will be considered to meet the OECD standard for what counts as a minimum tax.