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Philip Hammond sides with EU to demand Donald Trump drops tax reforms that risk trade war

Gordon Rayner, political editor 11 DECEMBER 2017 • 6:24PM
http://www.telegraph.co.uk/news/2017/12/11/philip-hammond-sides-eu-demand-donald-trump-drops-tax-reforms/

Philip Hammond has sided with four other European treasury ministers to warn Donald Trump that he could start a trade war with a series of proposed tax reforms.

In a highly unusual move, Britain, France, Germany, Italy and Spain have joined forces in writing a letter to the US Treasury expressing "significant concerns" about the tax changes "having a major distortive impact on international trade".

The ministers said the proposed changes could "contravene" World Trade Organisation (WTO) rules and America's own tax guidelines. President Trump wants to bring in a series of measures to increase the tax burden on foreign companies operating in the US.

Mr Hammond's decision to sign the letter amounts to a political gamble because it risks angering Mr Trump at a time when Britain is trying to strengthen its trade links with the US.

The Europhile Chancellor has also yoked himself to four other EU countries at a particularly sensitive point in the Brexit negotiations.

However Whitehall sources said the Government was increasingly concerned by evidence of protectionism by Mr Trump as he tries to force American firms to repatriate US dollars held abroad.

The letter, addressed to the US Secretary of the Treasury Steven Mnuchin, says: "It is important that the US government’s rights over domestic tax policy be exercised in a way that adheres with international obligations to which it has signed up.

"The inclusion of certain less conventional international tax provisions could contravene the US’s double taxation treaties and may risk having a major distortive impact on international trade.

"We would therefore like to draw your attention to some features of the proposals being discussed that cause significant concerns from a European perspective."

It goes on to list three taxation bills lodged in Congress that risk "seriously hampering" trade and investment between the US and European countries.

The letter is signed by Mr Hammond; Peter Altmaier, Germany's acting Federal Minister of Finance; the French economy minister Bruno Le Maire; the Italian finance minister Pier Carlo Padoan and the Spanish finance minister Cristobal Montoro Romero.

One of the taxes Mr Hammond is concerned about is a cut in corporation tax from 20 per cent to 12.5 per cent for income derived from exported goods.

The Treasury believes the tax cut would violate US obligations under WTO rules, which ban countries from introducing fiscal incentives that distort trade by making exports cheaper or imports more expensive.

The ministers also said that a 20 per cent "excise tax" on financial transactions, including a US firm importing goods from its own factories abroad, could "discriminate in a manner that would be at odds with international rules".

Earlier this month the US Senate agreed to moves that would lower the corporate tax rate from 35 per cent to 20 per cent, which would give American companies a competitive edge.

It would go against a series of agreements between the US and Europe to keep corporate tax rates broadly in line with each other.

The House of Representatives and Senate must pass matching tax bills before Mr Trump can sign them into law.

A Government source said: "The fact that there is a co-ordinated cross-country effort shows the level of concern there is about this."

A US Treasury spokesman said: "We appreciate the views of the finance ministers. We are closely working with Congress as they finalise the legislation through the conference process."

http://www.telegraph.co.uk/news/2017/12/11/philip-hammond-sides-eu-demand-donald-trump-drops-tax-reforms/