The European Commission has been the scourge of Silicon Valley in recent years and it shows no signs of relenting under incoming President Ursula von der Leyen.
Von der Leyen indicated that the regulation and taxation of big tech was high on her agenda in a speech to the European Parliament before her narrow election win.
“I will stand for fair taxes – whether for brick and mortar industries or digital businesses. When the tech giants are making huge profits in Europe, this is fine because we are an open market and we like competition,” she said.
“But if they are making these profits by benefiting from our education system, our skilled workers, our infrastructure and our social security ... it is not acceptable that they make profits, but they are barely paying any taxes because they play our tax system. If they want to benefit, they have to share the burden.”
Von der Leyen cemented her stance this week by extending the powers of the European bane of big tech: antitrust enforcer Margrathe Vestager.
In the five years since she was appointed European Commissioner for Competition, Vestager has ordered Apple, Amazon, Alphabet, Facebook and Qualcomm to pay antitrust fines and unpaid taxes that together totalled over US$20 billion. Her actions led the New York Times to dub her “the most powerful regulator of big tech on the planet.”
In her newly created role of “Executive Vice-President for a Europe fit for the Digital Age”, Vestager retains responsibility for the competition portfolio while adding leadership of the bloc’s digital policy under the position.
“The early indications are that the era of ‘light touch’ regulation for tech companies may be coming to an end,” Francine Cunningham, senior public affairs manager at international law firm Bird & Bird, told Computerworld.
Justice in the balance
Vestager has consistently claimed that she doesn’t deliberately target Silicon Valley, but has also expressed a desire to help European companies compete in world markets.
This ambition may soon receive financial backing from the Commission. According to a document obtained by Politico, civil servants are pushing von der Leyen to create a European tech investment fund that would invest more than $100 billion into equity stakes in companies in the bloc.
Cunningham believes the Commission will have to carefully balance market-oriented and interventionist strategies.
“The Commission can only act when it has the legal competence and grounds to intervene on an issue, or see its actions quickly challenged in court. The EU executive also has to carefully justify any decisions involving US companies, otherwise it will be branded as protectionist," she said.
“Nevertheless, it can be said that any Commission action that would have a detrimental impact on a European company may be more likely to be challenged during the institution's own internal decision-making process and may be subject to more pressure from Member States, than an action targeting a non-EU company.”
Risk of revenge
Critics of the Commission's approach claim that its rulings have had little impact. The probes took so long to complete that by the time fines were issued some of the competition had already been forced out and the penalties have barely dented the profits of the perpetrators.
Whatever their impact, Vesteger’s actions have prompted US President Donald Trump to state "she hates the United States, perhaps worse than any person I’ve ever met."
Raising the ire of the Trump administration runs the risk of imposing retaliatory tariffs. Trump threatened to do this to France in July, after the French Senate approved a tax of three percent on companies with revenues for digital services of at least €750 million worldwide and €25 million in France.
Trump and French President Emmanuel Macron agreed a deal to end their dispute at the G7 summit in August, after the French government promised to scrap the levy once the OECD had reached an international deal on taxing digital services, but the compromise may prove short-lived. Bloomberg reported this week that the US is still considering imposing tariffs.
“This episode shows how the introduction of legislation in just one EU Member State can risk retaliatory measures and result in broader tensions in transatlantic trade relations,” said Cunningham.
EU finance ministers had previously discussed introducing a Digital Services Tax (DST) for the entire bloc, but the Member States were unable to reach an agreement on the policy.
“Even though the OECD is now working on an international solution for digital taxation, some countries have recently taken unilateral measures to adopt a digital services tax in a form similar to the DST, including France, the UK, Spain, Italy and Belgium,” explained Cunningham.
“It is now up to the OECD, European countries and the US to continue negotiations and align the international approach with the countries that have already taken action to tax digital revenues.”
The new Commission is due to take office on 1 November, a day after the scheduled departure of the UK from the bloc, which could give the remaining EU member states greater leeway to impose more interventionist measures.
Speculation is mounting that it is now looking at ways of assessing the use of data by US tech companies
Cunningham believes the bloc’s motivations go beyond financial interests.
“When it comes to competition issues, taxation of multinational tech companies, or privacy issues, the European Commission has been grappling with the challenge of how to apply 'European values' to the digital economy,” she said.
“There is certainly a political momentum across Europe towards introducing greater regulation on technology companies, in the wake of public concern over market power, data protection breaches and online misinformation.
“Senior Commission officials appear to be motivated by what they see as the need to develop a new 'social contract' between tech companies and the jurisdictions in which they operate.”