EU Reported to Drop Digital Tax Plan to Seek Favorable Trade Deal

TMTPOST -- The European Union is reported to drop its plans to implement a tax that has been blasted by U.S. President Donald Trump as the transatlantic allies seem closer to reach a framework through trade negotiations.

Credit：Xinhua News Agency

The European Commission has backed down plans to levy the digital tax as Brussels removed such tax option from its list of proposed taxes for bringing in revenue during its next seven-year spending program, which was supposed to unveil next Wednesday, the Politico cited a EU document on Friday.

While the spending program draft, related to the seven-year budget plan starting in 2028 is supposedly unrelated to the EU-U.S. trade talks, the removal of the digital tax option marks a U-turn for the EU given a document regarding the budge plan back in May discussing the idea of levying digital companies, according to Politico. The American digital newspaper believed the U-turn could be strategic move by the EU and help the bloc persuade the U.S. to offer a more favorable trade deal.

The reported document showed the EU replaced the digital tax with three new levies on electric waste, tobacco products and large companies in the bloc with a turnover of over €50 million. With new taxes, the EU reportedly aims to generate from €25 to €30 billion per year that will be used to repay EU joint debt that was used to finance its post-Covid recovery. It was said senior European officials are working to decide which levies will feature in European Commission’s proposal and the aforementioned document still could be revised before publication.

The report came a day after Trump threatened he would impose 15% or 20% tariffs on most trading partners after announcing levies on nearly two dozen countries. If the report is accurate and the draft deleting proposed digital tax remains until publication, the EU would become another U.S. trading partner making concessions on the digital tax following Canada.

Trump on June 27 said he decided to terminated U.S.-Canada trade talks over the Digital Services Tax (DST), which was slammed as a “direct and blatant attack on our country.”“Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canad, effective immediately,” Trump posted on his social media platform Truth Social, suggesting his administration is readying the new tariff rates for Canada. “We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period,” the president said in the post.

Two days later, Canada said it would rescind its DST, which forces American Big Tech giants such as Amazon.com, Inc., Apple Inc. and Meta Platforms, Inc to pay DST equal to 3% of the digital services revenue that they make from Canadian users above C$20 million annually. The decision to scrap the DST is made to support the negotiations on a new economic and security partnership with the United States, according to a statement of the Department of Finance of Canada. It said Canadian Prime Minister Carney and President Trump have agreed that parties will resume negotiations with a view towards agreeing on a deal by July 21.

Trump on Thursday said his administration would inform all of the remaining countries of 15% or 20% blanket tariffs. Blanket tariffs are currently set at 10% as Trump on April 9 said that he has authorized a 90-day pause and “a substantially lowered reciprocal tariff” of 10% during this period, and on Monday signed an executive order to delay the tariff deadline to August 1.

However, European officials and diplomats believe the bloc is close to a potential agreement in principle with the U.S., which would avoid higher tariffs Trump had threatened. The EU is ready to finish an outline trade deal with the U.S. and is waiting to hear from the Trump administration, a EU spokesperson said on Friday.

"We remain on our side fully locked and loaded to conclude an agreement-in-principle with the U.S.," the EU spokesman said. He said he had no update on timing, adding, "We await some indication from our American counterparts that they are ready to do the same."