I spoke to the FT’s Brussels correspondent Andy Bounds about how Europe could and should deal with Trump tearing up the OECD tax deal and about whether the EU will cower away from using the full power of the DSA against the Technology giants.
The responsible Commissioner Michael McGrath told him already that the delay in the case against X is being delayed as it has to be legally watertight
TRANSCRIPT
Joe Lynam (00:00):
Through gritted teeth, Ireland agreed to raise its long held corporation tax from 12.5 to 15% for large companies as part of the agreed OECD global tax rules. But Donald Trump has now removed the US from that scheme entirely placing its global implementation in doubt. On top of that, he's now talking about polishing countries that charge American companies higher tax rates as well as creating an external revenue service. It all points to a major upheaval in how companies and governments will operate going forward and puts pressure on the EU especially because Trump believes that Europe is treating America very badly.
TRUMP CLIP (03:08):
They don't take our cars at all. They don't take our farm products essentially. They don't take very much. We have a 350 billion deficit with the European Union. They treat us very, very badly. So they're going to be for tariffs
Joe Lynam (03:21):
And that is Donald Trump speaking yesterday. Andy Bounds is the Brussels correspondent with the Financial Times. Good morning, Andy.
Andy Bounds (03:28):
Good morning.
Joe Lynam (03:29):
Andy, remind us about kind of the tax deal that was agreed at an O-E-C-D level that Trump now dislikes.
Andy Bounds (03:39):
Yes, and interesting is a deal that he sort of pushed for in his first term. I mean, he was very upset that American companies were putting their money into tax havens and the international way to deal with that, or at least low tax jurisdictions. The international way to deal with that was to have this global minimum tax, as you say, of 15% and that seemed to keep him happy. What he's now come back for a start, he seems to resent any international restrictions on what the US does and international bodies generally. So I think part of it's trying to undermine the OECD and set his own tax policies. But secondly, as you say, there's this particular issue which could cause trouble for Ireland, which is that he wants US companies to pay more tax in the US and as we know, a lot of US companies domiciled in Ireland and a lot of their global revenues kind of flow through there and they pay this Irish tax on it. He wants some of that revenue to be sent back to the US so that he can spend it on things there. Yeah,
Joe Lynam (04:45):
I can't imagine that these big American giants, especially the tech giants will like this because what we always learned in university, when your study business is companies can deal with big issues, big challenges, but they hate uncertainty. They hate when things are up in the air and that is what is exactly happening right now.
Andy Bounds (05:06):
Yeah, that's very true. In a way, that's what you get with Trump. I mean it's interesting, your previous item about legal fees. I mean I'm sure a lot of lawyers are going to do very well out of some of these disputes. The question is as well with Trump, of course he tends not to use traditional tactics. I mean we already talk about him threatening tariffs. He may use tariffs to try and force change on this issue, which is tariffs are normally about trade issues, but he kind of uses them as a weapon to get other policies as he wants. And what I notice very much from his early directives to his administration is a lot of it's about tax. There's not as much about trade yet that will come, but as big obsession seems to be taxed. And I think a lot of that comes from the people around him like Elon Musk and so on, because not only this global tax rate is hitting them and lot of countries are now putting in these digital services tax, try and find ways of taxing big tech groups which tend to sort of float above the system and operate internationally and find little ways of legally ensuring they pay as little as possible.
(06:12):
So he seems to be trying to take on that whole sort of network and structure as well.
Joe Lynam (06:15):
Now he only sees the physical trade deficit between the US and the eu. There is a massive services deficit in favour of the us.
Andy Bounds (06:25):
Yeah, that's right. I mean overall the trade relationship is quite balanced, but as you say, he's quite old fashioned I guess, in that he sees things he can touch and feel, steal cars, chemicals, pharmaceuticals, far more than he sees people paying money to use Facebook or advertising on X or whatever it is, which is services, trade financial services offices is huge. A lot of people in the EU using American financial services firm and that's all money going to US companies, but he doesn't see it, so he doesn't seem to care so much about it as the physical stuff.
Joe Lynam (07:04):
Now we're about to see a massive test of the teeth of the DSA and whether the EU has the political kaons to follow through on its own rules.
Andy Bounds (07:14):
Yes, that's a really good point. I mean, as you say, the DSA is Digital Services Act, which is supposed to police online behaviour and stopping election interference and hyping up particular posts and spreading disinformation. It's only just come in, it's not really been tested. There's a massive long investigation into X and mask over a year. Most of the companies covered by it are under investigation now. I actually had an interview with Michael McGrath, the Irish commissioner this week, and he said one reason all this is taking so long is that they do fear court challenges. These companies can appeal. If you find them, you can find 'em up to 6% of their global revenue, which is huge. I don't think they'd go that far, but if you find them, they will hire these expensive lawyers and if there's any gaps in the EU case, as we saw with Apple, it goes back and forth for years,
Joe Lynam (08:05):
But the commission won. But the commission won in the end in that one
Andy Bounds (08:08):
It did in the end, but I mean that's why they have to make sure it's absolutely watertight because if they were to lose A, they cost them money. B, it costs them credibility. Right? I mean, Trump would immediately say, well, your regulations rubbish. The judges don't like it, get rid of it.
Joe Lynam (08:24):
Very briefly, do you think they will pursue this case with X vigorously and in the expectation that he will definitely appeal no matter what?
Andy Bounds (08:34):
I think they will probably have to, I mean they will trim it down, I think to the very, very, every legal case has. Its a hundred percent what you think is a hundred percent certain and what 90%. I think they'll trim it down to what they really, really think. They can get certain, probably smaller. The fine might not be huge, but I think they will have to because otherwise the credibility of the place will shrivel up.
Joe Lynam (08:56):
Alright, Andy, thanks for joining us. That's Andy Pounds, Brussels correspondent with the Financial Times back in the moment, talking about social media posts by staff and what employers.
