Europe Plans Internet Crackdown

Wed, 2017/09/06 - 12:34pm | Your editor
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Just as Amazon announced that it would build its first fulfillment center within the New York City borders (in Staten Island, a part of my city), other internet giants faced new tax demands across the pond. Reuters reports from Tallinn that European Union finance ministers next week will discuss rule changes aimed at increasing taxes on digital multinationals such as Google and Amazon. The on-line giants face pressure in Europe to pay more taxes. It is hard for a single EU country to boost its taxes because existing rules limit the taxation rights to the countries where companies are physically present, giving digital firms an edge against physical vendors.

The informal meeting of finance ministers will be held in the Estonian capital on Sept 15-16. The paper which was seen by Reuters' correspondent proposes a reform of international tax rules to change the concept of "permanent establishment" so that digital multinationals can be taxed where they create value, and not only in countries where they have established their tax residence. It comes after several EU countries began negotiating with large digital companies for the payment of back taxes. They face legal hurdles in collecting payments. This summer a French court said Google did not have to pay euros 1.1 bn ($1.3 bn) in back taxes demanded by French authorities because it had no "permanent establishment" in France as Alphabet ran its French operations from Ireland.

Under the Estonian proposal, even without physical presence, large digital businesses would be liable to the corporate tax of the countries where they make profits. A "virtual" permanent establishment would be enough to justify taxation. It goes further than existing tax principles agreed at international level by members of the Organisation for Economic Cooperation and Development, which includes EU states, the USA, Japan and other rich countries. It is also more ambitious than proposals currently discussed at EU level to tackle multinationals' low tax bills, such as a common corporate tax base.

Any single one of the 28 EU countries has a veto on tax matters and several have blocked crackdowns in the past. To avoid a quick backlash, the Estonian presidency is proposing to discuss the issue in the coming months to reach a common position before the end of the year.

Canada today raised interest rates to a whole number, 1%, meaning deposits earn 0.75% while loans cost 1.25%. And the most international member of the US Federal Reserve board, Stanley Fischer, who formerly headed the Israeli CB, is resigning for personal reason next month, which will give Pres. Trump a chance to change the makeup of the Fed.

Thanks to the spate of hurricanes, the US debt ceiling was raised today by Pres Trump and Congressional leaders, until Dec. 15, so gold is down and the US$ is up, hurting all our non-dollar positions.

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