Five European Nations Issue Warning To America On Tax Reform

First it was the Chinese, now it’s the Europeans, as the rest of the world is suddenly very unhappy with the prospect of US tax reform (or maybe it is an unexpectedly strong US economy). As we discussed yesterday, with the historic Trump tax reforms on the verge of passage and the Fed’s dot plot signalling another 7-8 rate hikes (soon to be revised much lower), China is nervous that the capital outflows, which it thought it had bottled up, might be about to return. China is preparing a contingency plan which includes “higher interest rates, tighter capital controls and more-frequent currency intervention to keep money at home and support the yuan”.

Amusingly, the Wall Street Journal quoted a Chinese official who described Washington’s tax plan as a “gray rhino”. The latter is a combination of an “elephant in the room” and a “black swan”, i.e. a high probability threat which people should see coming, but don’t. The focal point of China’s fears is the Yuan, which the authorities have spent so much time and effort stabilising during the last two years. Speaking to the WSJ, the Chinese official sounded a warning: “We’ll likely have some tough battles in the first quarter.”

Switching to Europe and five European finance ministers have sent a letter criticising the US for undermining the “rules of the game” and international trade. Notwithstanding Brexit, the signatories included the UK Chancellor, Philip Hammond, as well as his counterparts in Germany, France, Italy and Spain. Essentially, the European nations are warning the US that it risks starting a trade dispute.

According to the Financial Times, "the finance ministers from Europe’s five largest economies have warned the Trump administration that Republican tax cut plans would flout international agreements and undermine trade, threatening to turn a Washington policy battle into a transatlantic row."

In a letter to the White House and US Treasury department, the ministers - including Philip Hammond of the UK, Peter Altmaier of Germany and Bruno Le Maire of France - raised the possibility of retaliating if the legislation becomes law. The letter highlights concerns in Europe that the Trump administration will use tax reform as a route to promote “America first” trade discrimination, escalating tensions that have already risen in other policy areas like the environment and Middle East peace.


The ministers insisted they were not seeking to intervene in a domestic tax debate, which they called one of “the essential pillars of a state’s sovereignty”. Nevertheless, the letter warned Steven Mnuchin, US Treasury secretary, that Washington should not start a trade dispute under the guise of anti-avoidance measures in taxation. “We have strong concerns if (US action to protect its tax base) is done via measures that are not targeted on abusive arrangements as this would impact on genuine business activities,” they wrote.

The letter was sent to Treasury secretary, Steven Mnuchin, White House economic adviser, Gary Cohn and the heads of congressional committees who are currently embroiled in merging the different versions of the tax reforms passed by the Senate and the House of Representatives. From the European perspective, the sources of contention are three measures which favour domestic US businesses, as the FT explains.

All of the measures that have angered European governments would treat US operations differently than those from overseas groups, provisions that the finance ministers said violate international tax norms. For example, an “excise tax” in the House bill would impose a 20 per cent levy on US company purchases from their foreign subsidiaries which would not apply to similar domestic transactions. The letter said this “could discriminate in a manner that would be at odds with international rules embodied” in the World Trade Organization.

The other two elements are the Senate bill, including a provision that would tax US exporters more favourably when they make profits from brands and other intangible assets. The letter argues the measure could “face challenges as an illegal export subsidy”, a thinly-veiled threat of European retaliation. Other Senate measures would tax transfers within international banks and insurance companies on the total amount sent between US and European operations regardless of the balance between transatlantic flows. Some of the European criticisms have been shared by a group of US tax academics, who published a recent analysis that said both the excise tax and financial flows measure “likely violates WTO obligations and presents tax treaty concerns”.

In a swipe at the poor lines of communication between the Trump administration and European nations, a French finance ministry official noted that using “more informal” methods of communication hadn’t worked, consequently, they had resorted to a formal letter as a “way to weigh into the debate”. Germany’s Finance Minister, Peter Altmaier, acknowledged that the US has the right to change its tax regime as it sees fit ”but it must be in compliance with the international rules”.

A spokesperson in Mnuchin’s Treasury department said that “We appreciate the views of the finance ministers.” However, with the tax reform being a centrepiece of Trump’s policy and US lawmakers rushing to finalise the legislation by the end of the year, we see little prospect of major changes to satisfy European concerns at such a late hour.

This latest dispute re-opens the wound of arguments  between Europe and the US and over tax, as the FT notes.

”The European letter is only the latest in a series of disputes between Europe and the US over tax issues that date back to the Obama administration. Then-President Barack Obama publicly complained about European Commission actions targeting American tech groups for “sweetheart” tax agreements with several low-tax EU countries. The most high-profile case has come against Apple, which has been ordered by Brussels to pay €13bn in back taxes to Ireland, but the commission has also opened similar cases against Amazon in Luxembourg and Starbucks in the Netherlands.

One difference between the current dispute and previous ones is that this time, the relationship between the incumbent US Administration and major European nations is considerably worse. Even the so-called “special relationship” between the US and UK has been damaged by a spat over Trump re-tweeting anti-Islam video from the deputy leader of a British far-right group.

Meanwhile, both the US and European Union are engaged in a dispute with China about the latter’s status as a market economy within the WTO. Granting it market economy status would make it more difficult for other nations to penalise China with duties. for dumping products, e.g. steel, at unfair prices. As we discussed, there is speculation that a Chinese victory in the dispute with Europe (the US will be settled afterwards) – and a decision is expected in 2019 – could lead to the demise of the WTO.

It’s becoming increasingly clear that the risk that a dispute between the triumvirate of the US, Europe and China escalating is significantly higher now than it has been in recent memory, which in itself should naturally be sufficient to send the S&P to new all time highs this morning.


pods IH8OBAMA Tue, 12/12/2017 - 13:50 Permalink

It's gotta be good if Europe hates it.Wait till we stop funding all ther socialist medicine and make them start paying for the development costs.Of course, that will only happen after the USD/FRN is a smoking crater, along with the US. But it's worth it to see the smug wiped off their faces.pods

In reply to by IH8OBAMA

overbet pods Tue, 12/12/2017 - 13:56 Permalink

If the government gets out of our way and allows capitalism to thrive by loosing the freedom strangling regulations, there is not a people in the world that could compete with us. The only close second would be the Asians that are slightly higher IQ, but lack any creativity whatsoever. 

In reply to by pods

Majestic12 Creative_Destruct Tue, 12/12/2017 - 15:33 Permalink

"China & Europe, FUCK, may I add, YOU!"

Let me get this straight...

"You" are so gonna benefit from Apple, Google, and Amazon....making shit in markup 500% and sell to "you"....then get enormous tax breaks as icing on the cake?

Is that about right, pedophile troll?

you think the "populist" tone of your "Fuck China", while actually "supporting" corps who don't make shit in "America" all that is needed to get the dumbfucks here to say "Fuck YeaH"...

Well, clearly you (by the number of upvotes)...are right.

I give up. People are hopelessly stupid.

In reply to by Creative_Destruct

Bes Majestic12 Tue, 12/12/2017 - 16:08 Permalink will distrub the trumptardsthe morons actually think China and Mexico are winning--------American companies in China and Mexico are winning (including the TRUMP brand)along with a few local oligarchsto smooth over the slave labor and ecological destruction--------and this tax "reform" will give them even more winsincluding letting them bring their loot hidden offshore back to 'Merica--------fucking imbeciles

In reply to by Majestic12

ATM Majestic12 Tue, 12/12/2017 - 16:22 Permalink

Yes. I would benefit from Apple GOogle Amazon or whoever else can make shit in China or Mexico and bring it back here to sell to me at whatever markup they can get me to pay.You know why? Because I decided it ws a good deal for me. And do you know why Google, Apple, Amazon et al make shit in china or elsewhere? Because it is a good deal for them.Do you know why?It is very simple. The US Dollar is the worlds reserve currency. as such it has much more relative value than it rightfully should. How in any world does it make sense that a country can run trade deficits for 40 years yet it's currency is desired by every country on earth? Reserve status.It lets you and I and every person who is paid in dollars live a lifestyle that is far beyond the actual vaue we create. We got paper dollars! SO GO AHEAD AND MAKE THAT SHIT I WANT TO BUY ANYWHERE IN THE WORLD! I DON'T GIVE A SHIT.I get real goods and services for little chits of paper. That wont always be the case so I want to stack up and pile up real things because when the dollar dies i won't be able to afford anything.

In reply to by Majestic12

veritas semper… Majestic12 Thu, 12/14/2017 - 00:03 Permalink

Exactly,look at all these dumb f*cks cheering for the BIG CORPORATIONS and BANKS ,which have been and are screwing them.And they like it!WE have a government made of: The biggest criminals,the PENTAGRAM,allied with the biggest crooks and thieves,the BANKS(GOLDMAN SACHS) ,making LAWS for their benefit(Like the FAGGOT DID with the FAGGOTCARE ,written by the big insurance companies) and so many here think that,somehow,this is AMERICA FIRST and for their benefit.disgusting!

In reply to by Majestic12

veritas semper… GUS100CORRINA Tue, 12/12/2017 - 18:01 Permalink

Oh,my! US constitution! It's ONLY a Paper,like our money.I don't recall the Federal Reserve mentioned in our constitution,or the fiat money,or Patriot act,or Liberty act,or NSA surveillance,or TSA searches(against 4th amendment),or having undeclared wars of aggression all over the world, I could continue,but you get the point.We do not have a Constitution ANYMORE. Just cheap talk.

In reply to by GUS100CORRINA

DelusionsCrowded overbet Tue, 12/12/2017 - 20:06 Permalink

Interesting booklet 75 pages on Amazon called Shenzen Superstars . Also worth having a look at this Utube : of a guy called Scott Allen building a Iphone 6 from spare parts he could by around town . The point he makes is that the tech manufacturing supply chain is deep and wide . Think the US decline is terminal . The vigor that made the USA successful has been sapped , Same with Britain and much of the Europe . If you have a look at that video you'll see everbodies out their hussleing . This is akin to the industrial revolution : sink or swim BUT it much less brutal (modern management systems )  and this final tech revolution means that when China is a first world country (20 years)  the people will be highly independent and educated (with IQ sufficient to absorb it ) . Education and intellligence is a key as it allow the populace to amuse themselves without destructive behaviour .I predict China  will become a BLOCKCHAIN DEMOCRACY on the Swiss Model as its the only real way to maintain and a balanced gov economic structure in a technological society , especially a country of China size. Xi has aleady stated something like this is being considered . Without an educated populace its not possible to have the people Check the powers that be . Compare those people with Amerikan people . I mean  the physical and educational state of the people in MC-PC nuthouse AmeriKa (and much of Europe , so don't take it personally , this is a critique not a criticism ) .The Amerikan Gov duplicity and greed of the educated elites has created this situation not the people . And its taken people by suprise (since the GFC , that tides gone out , we seee ...) . Like in any tribe we confur rulership to its leaders in good faith . And now they have lost mandate .Nemisis follow hubris like night follows day .

In reply to by overbet

I Feel a littl… MK13 Wed, 12/13/2017 - 01:38 Permalink

But I thought Europe was your ally? And the Rooskies were the bad guys? And the muzzies? And the Chinese? And the low IQ Africans? And the wetbacks? And the gooks? And the sand niggers?Oh dear, seems like you hate everyone.Go fuck yourselves, wack jobs from 'sea to shining sea'.

In reply to by MK13

Ghordius pods Tue, 12/12/2017 - 17:04 Permalink

wow. 61 "likes" for a sentence that starts with

"It's gotta be good if Europe hates it..."

Europeans, Chinese and many other foreigners have invested in companies in the US, firms that build, hire, pay taxes, etc. etc.

in some cases, just by buying stocks. in others, with their technology, setting the whole thing out of scratch

some US individuals and firms do the same, all over the world

now, Congress contemplates to treat them differently

and never mind that it's against previous promises and agreements, the question is a different one: where does your Congress think all this will lead to?

In reply to by pods

Ghordius JimmyJones Tue, 12/12/2017 - 17:28 Permalink


what about the most important, richest, most powerful "elite" of the world? famous for it's legions of lobbyists, lawyers, media talking heads? and... propaganda?

ah. of course. distraction. foreigners always good for that. put that "foreign" near to "elites" and there you have...

... "foreign elites". sounds... ominous. can't be good

In reply to by JimmyJones

MK13 BullyBearish Tue, 12/12/2017 - 15:00 Permalink

If you don't realize that current tax cut will spur business activity while limiting amount of SALT deductions libtards get to use while hamstringing Dems spending everywhere, you don't know crap.

This is political like political can be. Only unintended downside - libtards moving to lower tax, conservative states.

In reply to by BullyBearish

veritas semper… Endgame Napoleon Tue, 12/12/2017 - 18:15 Permalink

NATO was NOT,I repeat NOT created for European "defense" >Are you so ignorant?Read Daniele Ganser's book :NATO's secret armies.You may learn something.NATO,an ENTIRELY US RUN operation,was created to:keep US IN Europe,Germany DOWN,and Russia OUT. Get it?Have you heard of operation Gladio? See the above book.NATO IS ALWAYS commanded by a US GENERAL. The NATO secretary general is a PUPPET(the same way all US presidents are)Grow up! 

In reply to by Endgame Napoleon