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President Trump’s new tax reform does not only affect people residing in the United States. As the country has a citizen based taxation system, small and medium-sized companies owned by EU citizens with the American nationality are suddenly obliged to file a tax return to the US authorities, while they also pay tax in the EU. Sophie in ‘t Veld is concerned about the impact of this US tax reform and asked the following questions to the Commission and Council:
US tax reform affecting EU citizens and SME
Along with Eritrea, the United States is one of two countries worldwide using a citizen based taxation system. Non resident US citizens and “US persons” are obliged to file a US tax return and they are subject to various cumbersome reporting requirements. Among them many EU citizens with dual nationality, such as the “Accidental Americans”. In recent years enforcement by the US government has been stepped up, putting pressure on US citizens and US persons abroad. F.ex. FATCA is increasingly resulting in EU citizens being excluded from basic banking services. The new US GILTI tax is a heavy administrative and financial burden on European SME, possibly even leading to bankruptcies. The length and cost of the procedure to renounce US citizenship are prohibitive for many.
1. What diplomatic and legislative action does the Commission/Council intend to take to protect the interests of EU citizens and SME against citizen based taxation by US as well as Eritrea?
2. Though taxation is a purely national competence, does the Commission/Council consider a joint EU approach is needed to adequately protect the rights and interests of European citizens and SME?
3. Will the Commission/Council do a full analysis of the impact on EU citizens and SME?
Compatibility of US tax reform package with WTO rules
Part of President Trump’s “Make America Great” agenda is the recently adopted “Tax Cuts and Jobs Act”. Some elements of the tax reform package, GILTI (Global Intangible Low-Tax Income), FDII (Foreign Derived Income Attributable to Intangibles) and BEAT (Base Erosion Anti-Abuse act), may have an impact on the European economy and Europe based companies. Under FDII a US parent can get a rate benefit for its income from serving non US markets, meaning the more it exports, the higher its rate benefit. This could incentivise multinational companies to relocate to the US, and could thus be considered an export subsidy under WTO rules. BEAT foresees an add-on tax applicable to non-US headquartered groups with US subsidiaries concerning intra-Group transactions. The tax does not apply to transactions within the US, but only to foreign purchases.
1. Does the Commission consider GILTI may lead to a relocation of companies (non US subsidiaries) to the US?
2. Is the Commission aware of the administrative and financial burden of GILTI for SME with at least 10% ownership by US citizens, including EU citizens with dual nationality?
3. Does the Commission consider that FDII and BEAT are potentially incompatible with WTO rules?