After France truce, U.S. faces new tech-tax threat in Europe

Having just persuaded France to hold off on a digital tax that would hurt its biggest technology firms, the U.S. 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 stopgap measure — brushing aside possible U.S. 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 U.S. 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 percent 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 U.S. Ambassador Stephen King after the envoy wrote a newspaper opinion piece saying America may respond with proportional countermeasures against the Czech Republic.

The local unit of Google last year reported a net income of 15.9 million koruna ($697,000) and paid 8.8 million koruna in tax, while the Czech arm of Amazon made a profit of 19 million koruna and paid 9.7 million koruna of tax, according to regulatory filings.

That’s a fraction of the income recorded and taxes paid by the U.S. companies’ local competitors, which include search engine and online media group Seznam.cz and internet retailer Alza.cz.

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 U.K., Italy and Austria.

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

— Krystof Chamonikolas, with assistance from Lenka Ponikelska

Krystof Chamonikolas
Bloomberg News