Page 123 - SAMENA Trends - June-July 2020

REGULATORY & POLICY UPDATES SAMENA TRENDS

EU Pushing Ahead with Digital Tax despite US Resistance

The European Union’s powerful antitrust and COVID-19 bailout public tender systems. The frustrations found concrete form last
enforcer says the EU will push ahead with its own digital services week when the European Commission supported the creation
tax even if the U.S. sticks to its efforts to block a global deal. of a legal tool that would allow Brussels to crack down against
European Commission Executive Vice President Margrethe foreign subsidies, including by blocking acquisitions or banning
Vestager, from Denmark, is the most senior EU official to speak companies from participating in public tenders. Vestager hinted
out in the wake of the U.S. withdrawing from negotiations on that she would not be afraid to use the EU’s new powers once they
the tax. U.S. Treasury Secretary Steven Mnuchin withdrew June are finalized. “Where I grew up in the Western part of Denmark, if
17 from talks brokered by the Paris-based Organization for you invite people over and they don't invite you back, eventually
Economic Cooperation and Development, which aimed to create you stop” inviting them, she said. Another possible solution, she
a global system for taxing digital services in the country where said, would be a joint U.S.-EU “Trade and Technology Council,"
each transaction takes place — at a rate of at least 2 percent — an idea first proposed by the EU Trade Commissioner Phil Hogan
rather than where the tech company is headquartered. Vestager’s to give Western powers a place to coordinate their position vis-
strong language on the collapsing tax negotiations as well as the a-vis Chinese technology and commerce. “Right now we are not
broader transatlantic relationship signal the EU is increasingly making best use” of our “shared values and having a common
willing to operate with its elbows out when dealing with the history,” she said. Vestager conceded, however, that “China is
United States, and has all but given up negotiating with the Trump a partner, for instance, on climate change,” and can’t simply be
administration. In a wide-ranging virtual interview, Vestager said cut loose. That has complicated the EU's response on issues like
the EU would “really, really prefer a global consensus” on digital human rights in Hong Kong, where the continent has struggled to
tax, but will push ahead with a regional tax, “if we need to.” The move from words to action. Joshua Wong, a leader of anti-Beijing
new tax is necessary, Vestager argued, due to the ease with which protests in Hong Kong, last week accused the EU of running an
many large tech companies minimize their European taxes. That “appeasement policy” on Hong Kong, to safeguard its economic
makes it “so difficult to defend the many, many, many businesses interests in China. Vestager acknowledged Wong has reason to
all over the world who pay their taxes,” she said. French Finance be frustrated with the EU — “he's in a very difficult situation.” In
Minister Bruno Le Maire told the French Senate this month that the the wake of the economic devastation wrought by the COVID-19
U.S. was the lone holdout on a deal: “We were a few inches from pandemic, Vestager has been put in charge of ensuring economic
an agreement,” he told local radio. A frustrated Vestager said that rescue packages passed by governments within the bloc do not
big tech companies are inviting a backlash from both consumers unduly distort markets. And she reiterated Tuesday that she
and regulators by repeatedly pushing the limits of EU law. Many is enforcing strict rules on those who receive bailout money.
of those companies are American, Vestager highlighted, pointing Conditions on those rescue funds include a “ban of bonuses of
to a long list of antitrust and tax cases against Apple, Amazon senior management, acquisition bans, dividend bans, and “she
and Google as a sign companies are not learning from past EU said, adding that government support must only be offered with
regulatory tangles. “I worry that we did not have one Google case: clear “sunset clauses.” Vestager also noted the EU attaches more
We had two, we had three. We've had one Amazon case, (and) now stringent conditions to using government money to recapitalize
we have a new one. And we unfortunately had to open (two cases) or restructure a company than it attaches to short-term offers of
on Apple.” She added, archly, “There is, I think, still a learning liquidity support. Businesses that were failing before the pandemic
potential.” U.S. President Donald Trump has previously labeled will not be allowed to take government money to camouflage their
Vestager the “tax lady” over her decision to force Apple to pay over existing weaknesses, she added.
$14 billion in unpaid taxes to the government of Ireland. Vestager’s
tough line on foreign tech companies operating in Europe is part
of her broader goal for “open strategic autonomy,” she said, where
the continent pushes back against more aggressive U.S. and
Chinese policy postures, maintains open markets, and defends
Europe’s “welfare states, universal health care, universal access
to education.” But Vestager also expressed concern that despite
shared “fundamental values,” the U.S. and EU are allowing
themselves to be divided by China, with severe economic and
political consequences. Vestager said some Chinese companies
do not compete “fair and square” and said “there is a huge
problem of reciprocity” when it comes to market access in China.
EU officials are frustrated that Chinese authorities block foreign
companies from bidding for Chinese government projects, while
suspecting that Chinese companies benefit from government
subsidies, giving them an unfair advantage in the EU’s more open

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