Money-hungry Eurocrats target American taxpayers

Americans fought taxation without representation during the American Revolution. Now the European Union is trying to tax American companies even if they are not physically located in Europe.

The EU wants to impose a global minimum tax on digital innovation, aka the EU Digital Tax. With the recent Supreme Court ruling in South Dakota v. Wayfair, money-hungry eurocrats are trying to extract every single cent from Americans. The EU tax pushers see the ruling as an open door to impose burdensome taxes on American companies.

{mosads}Wayfair overturned a longstanding precedent from the 1992 Quill case which established that only companies with a brick and mortar or employee presence — a physical nexus — were required to collect and remit taxes in a particular jurisdiction. In a huge loss for representative government, the Court overturned Quill in a 5-4 decision. Now, even if a company is not physically in a state, it can be required to act as an out-of-state tax collector. This means that a politician from another state can raise your taxes and you can’t vote them out of office at the ballot box.

At a House Judiciary Committee hearing on the Wayfair decision, Americans for Tax Reform president Grover Norquist said, “The Europeans are excited about [Wayfair] because they think we’ve opened the door” to expansive European tax laws on American companies.

He’s right — this ruling is far larger than internet sales tax. It deems the long-standing physical nexus obsolete while encouraging taxation without representation in at least 10,000 jurisdictions in American states and cities and even more international jurisdictions.

What’s the biggest danger of the Wayfair decision? It could encourage European regulators to tax Americans without representation through the EU Digital Tax.

The EU Digital Tax is a two-part proposal composed of an interim and permanent proposal that would predominately impact American companies, whether they are physically located in the EU or not.

The permanent proposal, the Digital Permanent Establishment Directive, would establish a so-called virtual nexus for companies with, what the EU deems, a significant EU and worldwide presence. The proposal would tax profits generated in a Member State’s territory.

The Digital Services Tax is an “interim” proposal that would effectively create a 3 percent global minimum tax on company — not profits — based off of user location, advertising that facilitates sales, and data collection and processing. The interim framework would apply to companies with, what the EU deems, have a virtual nexus, and would rake in roughly five billion euros (5.8 billion dollars) for Member States from companies that have chosen not to physically locate in that state.

Once a proposal is in place it is hard to change or repeal, which makes the interim proposal, the Digital Services Tax, arguably the scarier of the two proposals because of its broad scope of taxation powers. 

This is a full-blown assault on American companies. The EU alleges that member states are not getting their “fair” share of American tax revenues — which aren’t even theirs in the first place — since many companies are not physically located in the EU and, therefore, fall outside of the EU’s tax powers.

The proposals are overwhelmingly unpopular within Member States and in industry. Norway, Denmark, Finland and Ireland rightly came out against the proposals, while Silicon Valley and the OECD have cautioned against the tax. Despite clear calls from the international and business community, the EU has no plans to pump the breaks on the tax hikes.

While the proposals are not law throughout the EU, Member States can implement their own versions of the burdensome tax. Spain recently announced their version of the tax despite strong opposition to the proposal.

In 1776, Americans willingly parted ways with Europe because of taxation without representation, but today the U.S. is flirting with disaster by giving two thumbs up to EU tax collectors following the Wayfair decision. Retailers will be exposed to complex and costly collection obligations, intrusive audits, and potential court proceedings. There needs to be boundaries for taxation. A physical nexus, set under the precedent of Quill, provided those boundaries so cities, states and other countries could only tax those with representation. 

There are legislative solutions to this mess. A 2015 bill authored by Congressman Steve Chabot (R-Ohio), the Business Activity Tax Simplification Act (BATSA), for example, would set boundaries for a taxable physical nexus so states can only tax businesses physically located in the state.

Now that we are living in the post-Wayfair era, Congress needs to create boundaries on taxation so the broad reach of the SCOTUS decision does not burden American companies. Congress has the power to decide whether to accept taxation without representation or to fight for the basic founding principles of our country.