Why von der Leyen’s Big Tech tax plan is bluster

BRUSSELS — Donald Trump called the European Union pathetic, so the EU set its sights on Silicon Valley to prove him wrong.

European Commission chief Ursula von der Leyen has come out swinging with a threat to tax the advertising revenues of digital services if trade talks with the United States president collapse.

Few diplomats will dare say openly that von der Leyen’s move to target Big Tech is a bad idea. Most national capitals are publicly backing her in a bid to strengthen the EU’s hand in negotiations with Washington.

But beyond the veneer of unity, countries including Germany and Ireland are already balking at the Commission’s threats, and behind the scenes others are growing queasy.

Among the worries are that new digital levies would hit European entrepreneurs harder than Silicon Valley tech moguls and that escalating a trade war could drag EU economies under.

POLITICO unpacks five reasons why von der Leyen’s threat is — at least for now — more bluster than substance.

1. There Is No Alternative

Remember when German politicians used alternativlos — “There Is No Alternative” — to sell painful spending cuts to southern countries during the eurozone crisis?

They’re using the same logic to warn against the digital advertising tax.

The argument is that EU companies will continue relying on big U.S. tech firms like Facebook or Google for their advertising because there is no viable alternative based in Europe. 

“If you look at data centers, if you look at the cloud, if you look at artificial intelligence data centers, unfortunately, there simply aren’t sufficient alternatives to the offerings by the American digital industry,” Berlin’s Finance Minister Jörg Kukies told reporters last week.

That would mean an EU move to hit U.S. tech firms would only ricochet right back to European businesses and buyers.

His brazen remarks irritated European Central Bank President Christine Lagarde, who accused Kukies of undermining EU unity for negotiations during a closed-door meeting of EU finance ministers in Warsaw, three officials told POLITICO.

European Central Bank President Christine Lagarde accused Kukies of undermining EU unity for negotiations during a closed-door meeting of EU finance ministers in Warsaw. | Kirill Kudryavstev/AFP via Getty Images

In fact, many experts agree with Kukies’ argument. “It’s difficult to impose such measures without harming too much EU consumers or EU firms,” said Bertin Martens from the Bruegel think tank.

2. There’s no obvious way to implement it

Adopting a digital tax is a legal minefield.

Efforts to implement a broad digital services tax on company revenues have failed at every hurdle because changing tax policy requires unanimity among the EU’s 27 countries.

To avoid this, von der Leyen suggested that digital services and advertising revenues in particular could be targeted through the so-called trade bazooka — the Anti-Coercion Instrument — which has never been deployed so far.

The ACI, however, can’t be used against companies with a strong presence in Europe, Martens said.

Most digital firms fall into this category because they are registered in EU countries such as Ireland (Apple, Microsoft, Google, Meta) or Luxembourg (Amazon).

There is a way around this. The EU could take aim at goods being sold online from U.S. sellers to European buyers, but that seems impractical.

“In order to do that, you will have to identify who are the U.S. sellers on the platform that [for example] Amazon will sell to EU consumers. And that’s much harder to do,” Martens said.

3. Ireland’s opposition

Ireland has much to lose from any levy on tech firms and has already defied the move publicly.

Irish Taoiseach Micheál Martin said over the weekend that the country would “resist” von der Leyen’s proposals. Putting a new tax on top of strict EU regulation on Big Tech would be “putting petrol on [the] fire,” he said.

Ireland is among the European countries most exposed to a trade war with the U.S. because it hosts subsidiaries of U.S. digital giants and also exported over €44 billion worth of pharma products to America in 2024.

“Ireland has an extremely concentrated corporate tax base, which is heavily reliant on U.S. multinationals in particular,” said Aidan Regan, a professor of political economy at University College Dublin, in an interview.

Ten firms account for 60 percent of Ireland’s corporate tax revenue and around 30 percent of its total tax revenue now comes from the corporate sector, according to Regan. “In terms of how the EU responds to all of this, Ireland is also quite squeezed,” he said. 

4. The promise of a global tax deal

The U.S. has in recent days signaled to the Organization for Economic Cooperation and Development that it wants to reopen discussions on a global tax deal.

Washington never signed up to the part of the agreement aimed at making Big Tech groups and multinationals pay more tax in the countries where their customers are based, meaning that section of the deal has not yet been agreed.

Von der Leyen’s threat to impose new tech taxes — beyond those already levied by individual EU countries — might prompt Washington to seek a global solution.

In an interview with the FT, OECD Secretary-General Mathias Cormann said the U.S. is actively engaging in discussions.

In a sign of openness, the EU’s 27 ambassadors on Wednesday entrusted tax officials to draw up new proposals in a bid to soften Washington’s concerns over a separate part of the agreement, an EU diplomat said.

U.S. officials oppose a mechanism that allows the signatories of the agreement to claw back tax revenues from companies that are paying less than the 15 percent global tax rate in other jurisdictions.

“They’re basically saying: ‘You don’t touch American profits whether they are undertaxed in the U.S. or elsewhere,” said Pascal Saint-Amans, a former top OECD official, referring to the U.S. “If we have satisfaction on that we’ll see what we do on Pillar I.”

5. Escalating without deescalating

Von der Leyen’s strategy is a risky one — and she knows it.

Threatening taxes against Big Tech is meant to bring Trump to the negotiating table and encourage a trade deal. “The guy [Trump] is all about deals. So you are pushed to do something that you don’t like,” said Saint-Amans, referring to the proposed levy.

But critics fear that things could go differently. Digital taxes might prompt a counterreaction from the U.S., which might spiral into a full-blown trade war with Europe.

That would hit growth across the bloc and especially in countries such as Germany and Italy that are heavily reliant on exports to the U.S.

The ECB estimates that unilateral U.S. tariffs would hit the eurozone’s growth rate by 0.3 percentage points in the first year and by as much as 0.5 points if the EU retaliated in kind.

Von der Leyen knows as much, and has this week seemingly softened her rhetoric.

“We are setting out our position clearly, and the Americans are doing the same. And that is the essence of any negotiations: nothing is agreed until everything has been agreed,” she said Wednesday in an interview with Die Zeit.