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Trump’s Tax Law Rankles European Finance Ministers

Viktoria Dendrinou, Mark Deen
U.S. President Donald Trump holds up a tax-overhaul bill after singing it into law in the Oval Office of the White House in Washington, D.C., U.S., on Friday, Dec. 22, 2017. This week House Republicans passed the most extensive rewrite of the U.S. tax code in more than 30 years, hours after the Senate passed the legislation, handing Trump his first major legislative victory providing a permanent tax cut for corporations and shorter-term relief for individuals.

The European Union voiced its concerns again over the impact of Donald Trump’s tax cuts but stopped short of threatening retaliation that could further inflame EU-U.S. tensions.

Urged on by France, EU finance ministers discussed the U.S. tax reform in Brussels on Tuesday amid concern that the legislation violates World Trade Organization rules and could lead to discrimination against European companies. According to a French official, the way the reforms are implemented will significantly change the international impact.

“We are not criticizing the right of the American administration to reduce the level of corporate tax in the U.S.,” French Finance Minister Bruno Le Maire said following the discussion. “But we have a very important concern related to the risk of double taxation and related to the risk of non-abiding by the international rules defined by the WTO.”

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This was the second time in three months the bloc’s finance chiefs examined the U.S. bill, underscoring their worries. The EU has written to U.S. Treasury Secretary Steven Mnuchin warning about tax discrimination and the potential fallout on trade. European Commission Vice President Valdis Dombrovskis said the issue must be discussed more fully among leaders of the world’s largest nations.

“We need to give some time for dialogue and see how the U.S. measures are actually being implemented,” Dombrovskis told reporters in Brussels. “It’s too early to speculate about possible next steps or retaliatory measures.”

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‘Doubts and Questions’

Europe needs “to see the impact it has on the world economy and on the common rules,” said Pierre Moscovici, the EU’s economic affairs commissioner. “We have doubts and questions about compatibility with World Trade Organization rules and need to look at that in depth and come back with a further exchange of views with our American friends.”

The latest discussion of the tax bill comes just days after criticism from IMF Managing Director Christine Lagarde. The centerpiece of the package is a reduction in the U.S. corporate tax rate to 20 percent from 35 percent, and Lagarde said this could fuel a “race to the bottom” among nations that undermines vital public-spending needs.

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The EU’s December letter said the measure may lead to double taxation on some payments and gives the government scope to discriminate against European subsidiaries operating in the U.S. Trump signed the legislation into law on Dec. 22.

Tax Rules

In his reply to the EU letter, Mnuchin said the new U.S. tax law was simply aligning the American system with those of its trading partners, while implementing global tax rules.

The Republican-led tax effort has also caused jitters beyond Europe’s borders, with Chinese officials expressing worries that a sweeping policy shift could negatively impact domestic markets. EU finance ministers, who also discussed the issue in December, have expressed concerns that the legislation would affect transparency and asked if the U.S. will continue to share tax information.

“We will closely assess the economic effects,” Germany’s acting finance minister, Peter Altmaier, told reporters on Tuesday. “We want to avoid companies moving their headquarters from Europe to the U.S. and we want to avoid investment flows being redirected.”

Updates with comments by EU’s Dombrovskis in fifth paragraph.

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