The EU Money Grab

European governments, that already have some of the world’s highest tax rates, are under increasing pressure to raise additional revenues, and believe that American tech giants represent a potential “gold mine.”  The route to increased revenues seems to be following several paths, including, new taxes designed to increase the EU’s share of U.S. tech company earnings, fines relating to alleged non-competitive practices, and an EU-wide digital sales tax on U.S. firms.  Why the emphasis on increasing revenues from U.S. tech companies?  This is probably, in part, an effort to improve the competitive position of domestic companies and in part a version of the Willie Sutton approach to bank robbing, “that’s where the money was.”

The EU’s efforts to increase revenues and support domestic enterprises has suffered some recent setbacks.  Apple recently won a major legal battle over approximately $15 billion in taxes allegedly owed to Ireland, and the EU Competition Commissioner has suffered a string of legal defeats, including a case targeting Starbuck’s taxes in the Netherlands.

Investors should not relax.  The EU will continue to seek additional revenues and ways to respond to their citizens’ belief that U.S. multinationals are not paying their fair share.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA