Germany and France will bring forward plans to introduce a common corporation tax system in response to tax cuts announced by the Trump administration, Chancellor Angela Merkel said.
“We have decided, with more emphasis than in the past, to push on with the ‘Common Corporation Tax with France’ project,” Merkel said in her regular weekend video podcast when asked how Germany’s relative competitiveness could be maintained.
“That means when we decide on a joint corporation tax assessment basis for France and Germany, we will also consider the realities that are unfolding in America,” she added in response to questions by a business studies student.
At the end of last year, the Trump administration floated a tax plan that envisaged slashing the corporation tax from 35 percent – “very high”, according to Merkel – to 21 percent, prompting protests from European finance ministers.
The Europeans fear that international tax competition will increase because of the U.S. moves. So EU members, especially Germany and France, see the need for more tax policy cooperation among themselves to make their markets more competitive.
Mr Trump said on Thursday that a plan for tariffs of 25 percent on steel imports and 10 percent on aluminum products would be formally announced next week.
“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” Trump said on Twitter on Friday.
But European Commission President Jean-Claude Juncker told German television in response: ”We will put tariffs on Harley-Davidson, on bourbon and on blue jeans – Levi’s.”
The fallout follows the revelation Mrs Merkel had not spoken to the US leader for over five months until the pair had a phone conversation regarding Syria last week.
That gap, described by diplomats on both sides of the Atlantic as shockingly long, underscores the challenge Merkel faces if she succeeds in forming a coalition government later this month and, as German officials suggest, tries to reset the relationship with Trump.
A strong believer in close transatlantic ties, Merkel was the go-to leader in Europe for both Presidents Barack Obama and George W. Bush when Washington and Berlin were navigating the global financial crisis, Russia’s annexation of Crimea from Ukraine and Iran’s nuclear programme.
But her relationship with Trump got off to a frosty start and has never recovered.