Trump Threatens Trade War Over Czech Digital Tax

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Czech Digital Tax

The United States is threatening the Czech Republic with a Trade War if it implements its planned digital tax.

“We reserve the right to impose retaliation if the tax is discriminatory against US companies,” the US government source told HN saying that the US sees the Czech digital tax proposal as discrimination.

Why collect a digital tax?

The tax is in response to the practice of global firms that have revenues in different markets but only pay taxes in countries with that collect little to no tax. In the Czech Republic, the tax will start midyear. Companies are expected to pay 7 percent of sales. According to the Ministry of Finance, the tax will bring five billion crowns a year to the state budget. The government approved the tax in November.

Who is subject to the Czech digital tax?

Big tech companies with global turnover over 750 million euros (19.1 billion crowns), and annual turnover in the Czech Republic of 100 million crowns, will be subject to the tax. This will affect major global players such as Google, Facebook, Amazon, and Apple.

The European Union did not agree on a common form of tax, so some countries, including the Czech Republic, chose individual solutions. France has been collecting taxes since last year.

US response to tax

How exactly the US will respond to the Czech legislation is not clear. Some entrepreneurs and the Chamber of Commerce say the tax is a bad idea, as a trade war will harm Czech exporters.

The US government has threatened to impose up to 100 percent additional duties on the French over their digial tax. This amounts to some $2.4 billion in goods, including sparkling wine, handbags, cheeses, and other products.

In terms of its rate, the Czech form of digital tax is more than twice as strict as the French digital tax.

The potential damage to the Czech economy could be over 5 billion. Some economists think the Czech Republic should wait for a global consensus on the taxation of the digital economy negotiated within the OECD.

This article originally appeared on Idnes and has been translated.