Tax reform in the U.S. could trigger big changes in Europe

One of the goals of recent tax reform in the United States was to encourage businesses to bring revenue currently kept in foreign countries back into the United States.

Not everyone was thrilled with this change — including a number of European countries.

In response, the European Commission is taking into consideration tax revisions of its own. A current proposal under consideration would shift how tech industries are taxed. Instead of focusing taxation on the country the business uses as its regional headquarters, the new tax structure would apply the tax based on where the business generates revenue.

The European Commission states the proposal aims to “combat tax evasion” in the digital marketplace. Current Treasury Secretary, Steven Mnuchin, has expressed concern over the proposal, stating the U.S. will “firmly oppose” any proposal that singles out digital companies.

This is not the first strike against businesses that operate in the digital marketplace. Digital companies have been under attack from many fronts, particularly from the European Commission. Three examples include allegations of:

  • Tax avoidance. The European Commission has accused a number of companies of avoiding tax obligations, as noted above. For example, the group ordered payments for back taxes and fines from Apple.
  • Inadequate protection of private data. Qualcomm was accused of illegally shutting out competition.
  • Anti-competitive behavior. Google was fined for allegedly misusing its search engine to promote its own shopping service and accused

It is likely those in favor of the proposal will use these examples as support for passage of the proposal.

If passed, the law would result in additional tax obligations for a number of companies that operate in the digital marketplace. Navigating the impact of these potential changes and ensuring your business remains in compliance with tax laws is difficult. Legal counsel experienced in tax compliance matters can help.

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