EU Continues To Threaten Trans-Atlantic Trade War

by Ulrika Lomas, Tax-News.com, Brussels

06 October 2003

The European Union renewed its threat to impose $4 billion worth of tariffs on US goods last week despite the influential Senate Finance Committee's approval of a tax bill that will replace the Extraterritorial Income Exclusion Act.

The bill, passed by a 19-2 vote on October 1, proposes using the $50 billion saved from the repeal of the offending Act to cut corporate tax for manufacturing firms from 35% to 32%. The bill also contains measures that will allow US multinationals to more easily take advantage of foreign tax credits, and to repatriate foreign earnings at a 5.25% tax rate for a temporary period.

However, the point at issue with the European Union is not the actual substance of the bill itself, but the proposed three-year transitional period before the new legislation comes fully into force.

"We have already waited for three years to get the legislation repealed," Arancha Gonzalez, spokeswoman for EU Trade Commissioner Pascal Lamy, observed at a news conference, continuing: "an extra three-year period could not be acceptable to us." "We would impose sanctions if and when the illegal FSC is not replaced by the end of the year," Gonzalez warned.

Meanwhile, Chairman of the Senate Finance Committee Charles Grassley, refuted the EU's claim over the transitional period, arguing that the new proposals removed the obligation on a firm to physically export goods before qualifying for the tax break.

"I would think the European Union would have some appreciation for the extent of this undertaking and show some restraint and patience," the Iowa Republican said, according to Reuters. "The imposition of sanctions now will only contribute to soften the economic recovery and slow economic growth worldwide."

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