The United States has officially threatened the Czech Republic with a trade war for the first time over the country’s proposed digital tax.
The U.S. Ambassador Stephen King officially warned Czech MPs against the introduction of a digital tax, saying it could result in tariffs being levied against the Czech Republic.
The Czech digital tax would affect primarily large technology companies from the United States such as Facebook, Amazon, and Google.
According to King, the Czech Republic should wait for the most economically developed countries within the OECD to agree on a joint approach to taxing tech companies. Otherwise, Czech exporters to the U.S. could face tariffs.
The U.S. has been lobbying against digital tax for a long time. So far, however, the US representatives mostly made only unofficial statements or negotiated with some ministers or MPs.
Pressure is rising on the Czech Republic
The evidence of the increased pressure on the Czech Republic came in the form of a letter sent by the U.S. embassy to all members of the Chamber of Deputies’ budget committee at the end of last week. In the letter, King labeled the proposed 7-percent digital tax as discriminatory and extremely high.
Czech MPs will again discuss the changes to the digital tax proposal in a month.
According to government expectations, the digital tax should bring around two billion korunas (€80.46 million) to the state budget this year.
In the letter, the U.S. Embassy in the Czech threatens to launch a trade war.
“Besides, as I told Prime Minister Andrej Babiš and other ministerial officials, the United States retains the right to take appropriate measures to defend our innovative firms, including retaliation,” King wrote in the letter.
Retaliation tariffs would probably target selected Czech export branches. Each year, Czech companies export goods worth 90 billion korunas (€3.6 billion) to the U.S. The biggest exporters are aircraft engine manufacturers and rubber companies.
The Czech Republic may pull back on its digital tax
Due to U.S. pressure, the taxation of large tech companies may eventually be more lenient. Many MPs lean towards cutting the rate from 7 to 5 percent. Moreover, according to several MEPs, the introduction of the digital tax, which should come into effect this summer, might be postponed.
“We can discuss the postponement of the digital tax until Jan. 1, 2021. But let’s not wait for a joint OECD solution, who knows when it will be made,” said MP Václav Votava.
However, the Ministry of Finance has repeatedly ruled out the postponement of the digital tax introduction. If there is a consensus on the taxation of digital companies within OECD, the Czech Republic is ready to cancel its tax.
Facebook chief Mark Zuckerberg himself previously stated that he supports such reforms.
“I understand that there is dissatisfaction with the taxation of technology companies in Europe. We also want tax reform,” he said in Munich last Saturday.