What's going on?
A double dose of tax news on Tuesday highlighted the increasing challenges that Amazon (and US tech firms in general) is facing in Europe.
What does this mean?
First, Reuters reported that the European Commission (essentially the European Union’s government) will soon announce a proposal to change the rules concerning sales tax (a.k.a. VAT) on cross-border sales. The plan calls for VAT in a cross-border transaction to be charged at the rate set by where the buyer is located, rather than in the seller’s home country (as is the case now). This would stop Amazon, and others, from benefiting from making sales from a low-tax country, like Luxembourg, that are destined for a higher tax country, like Germany. Second, the EU will reportedly announce on Wednesday that it will force Amazon to pay hundreds of millions of euros in “back taxes” to compensate for what the EU says is an unfair tax deal it had with Luxembourg.
Why should I care?
For the market: It’s becoming “death by a thousand cuts” for US tech firms operating in Europe.
Tuesday’s news follows a previous ruling that Apple would have to pay €13 billion in “back taxes” to Ireland and other various EU rulings against US tech companies. So far, none of the EU’s actions have had a significant impact on the share prices of the US tech giants affected – but as new regulations increasingly endanger revenue, the risks to investors increase.
The bigger picture: While Europe enacts roadblocks, America is (possibly) becoming more welcoming.
One of the main aims of new corporate tax proposals out of Washington is to end a quirk of the tax law that encourages US-based companies to keep internationally generated profits from entering the US. At the same time that Europe is making life more difficult for US-based companies, America is considering steps that would encourage them to return money to the US. That money could be put to work developing new products, hiring workers and doing other economically productive things.