US President Donald Trump signed the new tax legislation, which reduced the US corporate tax to 20% from 35%, into law on 22 December. Photo: Reuters
US President Donald Trump signed the new tax legislation, which reduced the US corporate tax to 20% from 35%, into law on 22 December. Photo: Reuters

Donald Trump’s tax law rankles Europe as ministers fret about fallout

The centrepiece of EU concerns is a reduction in the US corporate tax rate to 20% from 35%, and IMF chief Christine Lagarde said this could fuel a 'race to the bottom' among nations that undermines vital public-spending needs

Brussels/Paris: European Union finance ministers are set to voice their concerns again over the impact of Donald Trump’s tax cuts, having already criticized the plan and warned it may violate international rules.

Ministers, who are gathered in Brussels for their monthly meetings, will discuss the tax reform over breakfast on Tuesday. The informal talks are an initiative of France, which is pushing to have it on the agenda of European governments. According to a French official, the issue must be kept on the table because the way the US implements the cuts will significantly change the international impact.

It’s the second time the bloc’s finance chiefs are examining the US bill, underscoring their worries. The bloc has already written to treasury secretary Steven Mnuchin warning about tax discrimination and a fallout on trade, and governments have tasked the European Commission—the EU’s executive arm—to assess the impact of the measures.

“We don’t have to discuss the legitimacy of this tax reform but we have to see the impact it has on the world economy and on the common rules," Pierre Moscovici, the EU’s economic affairs commissioner, told reporters on Tuesday. “We have doubts and questions about compatibility with World Trade Organization (WTO) rules and need to look at that in depth and come back with a further exchange of views with our American friends."

IMF criticism

The latest discussion of the tax bill comes just days after criticism from International Monetary Fund (IMF) managing director Christine Lagarde. The centrepiece is a reduction in the US corporate tax rate to 20% from 35%, and Lagarde said this could fuel a “race to the bottom" among nations that undermines vital public-spending needs.

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

In a response last month in a letter seen by Bloomberg, Mnuchin said the new US tax law was simply aligning the US 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 US 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 US and we want to avoid investment flows being redirected." Bloomberg

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