After France truce, US faces new tech-tax threat from Europe

Having just persuaded France to hold off on a digital tax that would hurt its biggest technology firms, the US is facing a similar threat from another part of Europe.

The Czech Republic is debating plans to impose one of the world’s highest levies on global internet companies albeit as a stop-gap measure brushing aside possible US retaliation.

The initiative comes as transatlantic trade tensions once again bubble over. Shortly after agreeing on the truce with France, President Donald Trump’s tone changed as he complained that Europeans are “more difficult to do business with than China.”

Cars are another bone of contention. Commerce Secretary Wilbur Ross said this week at the World Economic Forum in Davos, Switzerland, that the US was still considering slapping levies on European auto imports, even as it hopes for a “peaceful resolution” of differences.

Czech Foreign Minister Tomas Petricek said Thursday that he’s aware of the risks in imposing the 7% levy, which would target local revenue because the majority of profits are booked and taxed in other jurisdictions.

“I understand the United States perceives this negatively,” he said in televised comments. “We’re trying to explain that this step is only temporary until an international solution is found.”

Petricek met US Ambassador Stephen King after the envoy wrote an newspaper opinion piece saying America may respond with proportional countermeasures against the Czech Republic.

US firms have paid very little in Czech tax in recent years.

Google Czech Republic s.r.o. recorded a net profit of 15.9 million koruna ($835,000) in 2018, paying 8.8 million koruna in tax, according to a regulatory filing. That same year, Amazon Czech Republic Services s.r.o. booked a profit 19 million koruna and paid 9.7 million koruna of income tax.

Billionaire Czech Prime Minister Andrej Babis is trying to impose the digital tax alongside higher levies on gambling, alcohol and tobacco to boost public-sector wages and fund welfare spending. He’s previously enjoyed warm relations with Trump.

Other European countries that have introduced a similar tax or are planning to do so include the UK, Italy, Austria, and Denmark.

France agreed this week to delay collecting its 3% digital levy until the end of the year to avoid the threat of higher US tariffs. The two countries said they’d made progress toward a global pact on the taxation of digital services.

© 2020 Bloomberg