France seeks to drag rest of Europe into senseless trade war with U.S. over ideologically-motivated digital services tax

Yesterday, the United States Trade Representative (USTR)--which is the title of a presidential appointee at the rank of an ambassador (presently Robert Lighthizer), who has an entire agency, the Office of the USTR, working under him--published the findings (PDF) from the first segment of its Section 301 (Trade Act of 1974) investigation into France's Digital Services Tax. In July I reported and commented on the initiation of the investigation.

The USTR's proposed action "includes additional duties of up to 100 percent on certain French products," such as French wine. The approximate annual trade volume of those goods is $2.4 billion. Today, the French government threatened retaliation, seeking to leverage the collective economic power of the EU (which leverage is the whole reason why French politicians pretend to be pro-European) against the U.S., but President Trump remains optimistic that he'll "be able to work it out."

There are some European countries whose existing or envisioned digital tax regimes may come under pressure, so France will have some allies. But there are also many European countries that simply cannot have an interest in an escalating trade war with the U.S. only to defend of one of failing Macron's pet projects.

I've read the USTR's report in detail. The comments submitted by various stakeholder representatives to the USTR during the course of the investigation are also worth reading (you can find them on the public docket).

The U.S. government has reason and logic on its side, as well as longstanding principles of international tax and trade policy. By contrast, France has almost nothing to offer but envy and ideology.

I wrote "almost" because there is a problem that does need to be addressed, and the U.S. doesn't deny it as it's affected by it as well: it's called "base erosion and profit shifting" (BEPS). The OECD is working on that one, and it's a difficult one to tackle. Donald Trump has had some success in that regard: he basically struck a deal with large U.S. corporations under which he gave them a tax rate that made it make business sense for them to repatriate some of the profits they had parked abroad, particularly in Ireland. That kind of deal, however, is only an option if you have a truly strong economy, as the U.S. does and France doesn't to nearly the same extent. It also presupposes a political leader who, like Donald Trump, takes a pragmatic, results-oriented, non-ideological perspective.

President Trump is standing on higher ground here. He's a frequent and sometimes fervent critic of social media giants like Facebook and Twitter, who also in my observation tend to suppress conservative voices by applying dual standards. But as a matter of principle, those compüanies have to be taxed primarily in the U.S., not in France.

The primary obstacle France faces in the BEPS context is simply the European Union. Just like its monetary union is an abysmal failure (as the dysbalance of the European Central Bank's TARGET2 system and ever more negative interest rates and their devastating effects on many low-income earner's retirement savings prove) because it came too early, the "Single Market"--though it does give the EU a lot of political power (500 million reasonably affluent consumers)--is flawed because it has no safeguards in place against abusively low tax rates by small member states: neither can the EU force them to impose higher taxes (though in Ireland's case there would have been a window of opportunity when the country needed a bailout) nor is there even a way of excluding a country from the Single Market if it doesn't meet certain demands (probably the only club in the world that can't get rid of antisocially-behaving members).

There's a parallel between France's Digital Services Tax (DST) and the ill-conceived "state aid" case against Ireland--in reality, against Apple: both measures were taken just because the EU couldn't agree on bloc-wide minimum corporate tax rates. Commissioner Vestager (who's great in many other ways, but misguided in this context) and French president Macron wanted to "do something" at any rate, so the Danish commissioner made up a "state aid" case out of thin air--the Court of Justice of the EU may very well overturn it entirely or for the most part--and the French president had his parliament put that DST in place.

Even that controversial Article 13 (now 17) of this year's EU copyright reform falls in that category. Advocated most aggressively by France, it basically seeks to impose a copyright-based levy on digital content platforms, knowing that Europe's market share in content consumed by European users is greater than its share in platforms. It's a DST by any other name, though not as obviously discriminatory as France's DST.

The biggest mistake those unqualified French politicians made in this context is that they made their intent to discriminate against U.S. companies very clear. The USTR's report refers to ample evidence. At all stages of the political process, and at all levels, French politicians left no doubt that they wanted to target major U.S. digital economy players while defining all thresholds and categories to the effect of not affecting any other companies with very limited exceptions (such as Spotify's advertising-based free music service).

With respect to the discrimination, the following quote from an aide to French finance minister Bruno Le Maire is also telling--it was his response to someone expressing concern over the possibility of Amazon passing on the DST to third parties selling products via its platform:

"“[T]his response makes Amazon less competitive, and so much the better, because its monopoly worries us. [...] This may allow other platforms to recover some of their customers."

It's highly unusual--and equally objectionable--for a government to state publicly that a tax regime is designed to redistribute not only money, but market share.

The French DST is also structurally more discriminatory than the EU's proposed DST (which failed to receive unanimous support) would have been.

The USTR's report makes a very good point: for low-margin businesses, a tax based on revenues (not on sales like a value-added tax, which would affect everyone, and not on profits, which only affects profitable companies) disadvantages low-margin businesses and may even force some of them to exit the French market.

The practical implications of France's DST are also insane. Companies like Amazon or Google would have to put new accounting systems in place so they can track, for the purpose of French DST, whether a transaction came from a user who was on French soil at the given time (even though that may sometimes be the only connection to France--the user may be foreign, and the seller of a good may be foreign). What's worse is that, contrary to longstanding principles of taxation, the French DST is put in place retroactively, and if some companies didn't have the related user-location-based revenue tracking in place before July, then some rough and potentially unfair estimates of the portion of their first-half-of-2019 revenues subject to French DST will have to be performed.

As for who will be affected and how much, the largest volume is presumably digital advertising. Here, the affected players (according to the USTR's report) are Alphabet (Google, YouTube), Amazon, eBay, Facebook (also including Instragram), Microsoft, Snapchat, TWitter, and Verizon (Yahoo)--and only one French company, Criteo.

Where margins are a greater problem, and volumes lower than in digital advertising, is the "marketplace" category. The French law defines marketplace services in such a way that even huge French retailers who sell products directly won't be affected--it's about those who perform eBay-like intermediary services. Here, most are from the U.S., and a few from Japan and other European countries than France. The affected U.S. companies in this context are AirBnB, Google with respect to the Android Play Store (app store), Amazon's retail involving third parties selling via its platform, Apple's App Store, Booking Holdings (booking.com, OpenTable etc.), eBay, Expedia, Groupon, Match Group (Match, Meetic, Tinder), Sabre, Uber, and ContextLogic (Wish). There will be some impact on China's Alibaba, Spain's Amadeus (business-to-business travel services), Germany's Axel Springer media conglomerate (which owns a French real estate site named Seloger) and the Zalando retail site, Japan's Rakuten and Recruit, the Netherlands' Randstad (recruiting), Norway's Schibsted (Leboncoin), and the UK's Travelport.

All in all, 17 of the 27 company groups expected to be covered by the DST will be U.S.-based, and only one French-based.

I wish all of the companies for whose rights President Trump is standing up here were grateful. Some of them are run by ultraliberals who will likely just take this for granted. Some others are more constructive. But should the Democratic Party nominate "Fauxcahontas," one of whose stated goals is to break up various Big Tech players, it will be interesting to see whom Silicon Valley PACs will ultimately donate to...

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United States Trade Representative launches investigation into France's digital tax for good reasons--and should look into copyright law, too

Yesterday the United States Trade Representative (USTR), Robert Lighthizer, announced, officially at the behest of President Donald Trump, the initiation of a Section 301 investigation (i.e., an analysis of whether a foreign government violates a trade agreement or acts unreasonably or discriminatorily against U.S. commercial interests) of France's digital services tax. The next formal step will be a Federal Register notice. This is what Mr. Lighthizer said:

"The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies. [...] The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce."

The President and the USTR are rightly concerned. France, with its almost plan-based highly-centralized economy and statist approach (= the opposite of Reagan's take that one has to get government out of the way) is an abysmal digital-industry failure, and TIMSS, the leading international math skills analysis, shows that French students are pretty much at a level with Third World countries, which means things are only going to get worse in the "Hexagon." Geographically, France is part of Europe; in educational terms, it's the worst country in the entire EU. By comparison, Singapore takes 25 times as many students (relative to the total number of students) to the top-performing level; Russia, ten times as many; and even the U.S., with its oft-criticized educational systems, seven times the number of France (again, this is a relative measure, so large countries don't have any advantage). While Germany performs 2.5 times as well as France (still far behind not only East Asia but also the U.S. and even a country like Kazakhstan), its politicans are incompetent and/or ideological enough to believe that France is their best partner in innovation policy, instead of trying to stay away from the failed French approach as much as possible.

There are two French computer game makers I think highly of: Ubisoft and (in the segment of "snackable" minigames) Voodoo.io. Other than that, I can't even think of a French technology product that would matter.

The French digital-tax initiative is ill-conceived because they don't want to tackle the real issue. The real issue is simply that the EU as a whole is a fundamentally-flawed supranational structure that does more harm than good. I sometimes recommend a great Wall Street Journal article (which doesn't even mention all of the problems), "Incredible Shrinking Europe."

Just like it was stupid and irresponsible in the first place to put a common currency in place without a common economic policy (as a result, the European Central Bank hasn't increased its interest rates even once in more than a decade, while the U.S. had half a dozen hikes during the same period), it was also incompetent and irresponsible to create a "Single Market" without some minimum tax standard or, in the alternative, an easy way to exclude members taking unfair advantage of this by positioning themselves as a low-tax access point to a market of 500 million consumers. As a conservative I'm all for tax competition, but fair tax competition and not just leeching.

The EU and the large member states of the eurozone are so poorly run that they didn't even seize the historic opportunity they had when Ireland needed a bailout. They could have conditioned the bailout on Ireland agreeing to some minimum tax standard. Obviously, leeches like Luxembourg (Juncker's country) wouldn't have liked this anyway, but Ireland is the #1 problem in this regard.

The Apple "state aid" case is the only crazy thing Mrs. Vestager did during her first term (other than that, I disagree only gradually, not fundamentally, such as with respect to some aspects of the Android case; I'm now looking forward to her second antitrust hammer--the final one for this term--coming down on Qualcomm soon; and on Twitter I repeatedly voiced the view that she was the best potential candidate for the presidency of the European Commission). That Apple-Ireland case has nothing to do with "state aid" and everything to do with "buyer's remorse" in the sense of the EU now seeing the problems that a Single Market without a common fiscal policy (at least a minimum tax standard) creates. Apple is not responsible for the EU's structural issues.

What France is doing with its digital tax is really odd. It's not a sales tax because there is no physical sale occurring in France when Facebook, for instance, displays an advertisement. Nor is it a tax on profits. Instead, France argues that because major digital platform companies are very profitable, foreign entities owe France a percentage of revenues attributable to the French market.

France wanted to make this happen at the EU level, but never got real traction as Germany was reluctant to support this with a view to potential backlash affecting its automotive industry. So France decided to implement something at the national level, and I'm glad the U.S., under its best president in decades, will seriously consider some retaliation in order to dissuade France from this idiocy. Maybe the U.S. International Trade Commission, with its investigative resources, will also be of help in the process. The top-listed candidate of Macron's party in this year's EU Parliament elections made it very clear that they view Google, Amazon, Facebook and Apple as enemies of the state, or collectively as the equivalent of a rival world power, all of which is downright insane.

While I'm not going to do any more copyright reform-related posts on this blog (maybe a new blog further down the road), I would like to just say that Articles 15 and 17 (previously Articles 11 and 13) of the EU Copyright Directive adopted this year are also the equivalent of a digital tax discriminating against U.S. Internet platform makers. France was the driving force behind Article 17 (upload filters), while Germany was more interested in Article 15 (link tax). In fact, France politically blackmailed Germany by threatening to block the Nord Stream 2 pipeline deal with Russia at the EU level if Germany hadn't supported Article 17 of the copyright bill. That is not a conspiracy theory. It was confirmed by reliable sources and reported by Frankfurter Allgemeine Zeitung, and it was obviously no coincidence that both the gas pipeline issue and copyright reform were the only two "A items" on the EU Council's April 15, 2019 agenda (so as to make it clear to Germany, which was having second thoughts, that derailing copyright reform would trigger some energy-related blowback).

The "upload filter" paragraph of the copyright bill is practically a digital tax because it creates a liability regime that is so strict that even the term "strict liability" the way it is reasonably understood in the U.S. would be an understatement. It gives enormous leverage to copyright holders (many of whom are European collecting societies and publishers) against major Internet platform companies in licensing negotiations. There are, as we all know, many very significant U.S. copyright holders (Hollywood, music industry etc.), and they'll benefit from this, too, but the European share of copyrighted works consumed in Europe is hugely greater than the European share of digital platforms used by Europeans. Therefore, this is another means of unreasonably and discriminatorily sucking money out of major U.S. Internet platform companies. It's like the digital tax, but indirect: collecting societies and publishers will initially receive the money, but obviously this will result in incremental tax payments in Europe, including France.

EU member states have some limited flexibility--a modicum of wiggle room--regarding the transposition of Article 17 into their national laws. France is already pressing ahead with the most draconian and unbalanced implementation imaginable, and other European countries may follow, though there's clearly less enthusiasm for this elsewhere.

I will follow the Sec. 301 investigation of the digital tax issue, and I strongly recommend to major Internet platform companies and the industry bodies representing them to raise the EU Copyright Directive, or at least its transposition into French law, in this context. It really is an indirect digital tax. Doing so now might dissuade other EU member states from adopting France's copyright extremism. While that is not what President Trump was elected for, it would happen to have significant benefits for European Internet users, too.

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Macron's party names GAFA (Google, Amazon, Facebook, Apple) among Europe's largest rivals on global stage

It's election season in Europe, and that's the time when political priorities often crystallize. In a television appearance that is as stunning as it is telling, the top-listed candidate of French president Macron's party for the European Parliament elections, Nathalie Loiseau, practically declared war on four major U.S. tech companies by likening them to rival nations on the world stage for Europe to confront (this post continues below the tweet):

Emmanuel Macron's lead candidate for the EU election: "We need to a strong Europe to face China, the US, Russia and the GAFAs (Google, Apple, Facebook, Amazon)." Tech companies are officially like states. #LEmissionPolitique https://t.co/ZAmmgZYMe1

— Laura Kayali (@LauKaya) April 4, 2019

The statement was made on a popular political TV program in France, L'Émission politique, and subsequently Mrs. Loiseau retweeted a recording. Interestingly, the list of rivals she named on TV also included the United States, but she (or, more likely, her social media team) omitted the U.S. from the list in the tweet. The complete list of rivals is:

• China,

• the United States,

• Russia, and

• GAFA (Google, Amazon, Facebook, Apple).

The GAFA companies are U.S. companies, and the tech sector is a significant part of the U.S. ecoomy, so the fact that this group of companies is nevertheless additionally listed at a level with the three global superpowers says a lot.

What she says is that in the face of those challenges, "Europe has to make others respect it" (I purposely translated this fairly literally). It's a rather combative statement.

Just prior to the list of rivals she stresses that "there won't be a strong France without a strong Europe," and that's the problem. Macron ran on a pro-European platform, but his vision for Europe is one of putting French interests and the French school of thought first and demanding that the rest of Europe follow because he knows, as Mrs. Loiseau does, that France alone is too weak.

The idea of being stronger together than alone is shared by the political establishment across continental Europe. German politicians basically say the same. But there are different approaches, especially to economic policy and, by extension, IP policy: "social market economy" (the German policy goal, which is also shared by large parts of Central and Northern Europe, and the post-socialist transformation of the Eastern European economy is driven by similar ideas) vs. a statist (heavy-handed government), centralized system as the one favored by France.

Here are four key characteristics of the French economy:

• The highest ratio of public spending to GDP of all EU Member States (56.5%),

• a revolving door between government and large corporations (and not just the lobbying departments, like in Germany, but senior management),

• a focus on "national champions," and

• a weak SME (small and medium-sized enterprises) segment.

They even have a state-owned patent troll (France Brevets).

The French approach just isn't working in the Digital Age. There are exceptions, such as two French games companies that I highly respect: Ubisoft and, more recently, Voodoo, which focuses on "snackable" minigames and generates huge numbers of downloads. But Northern Europe is way stronger (even in interactive games).

In December, Gunnar Heinsohn, a professor emeritus who's both an ecoomist and a sociologist, published an article (in German) entitled "Why France is beyond salvation." The article mentions that South Korea is now filing almost twice as many international (PCT) patent applications per year as France, though its population size is about 25% less than that of France, and the average French IQ is only 98, with immigrants averaging only 92. According to the OECD, France has the least qualified immigrants of all 36 OECD nations. When TIMSS (Trends in International Mathematics and Science Study) was conducted for the first time, back in 1995, French students were ranked 13th in the world, but over the course of the next 20 years, France dropped by more than 20 ranks to #35, behind Qatar and Abu Dhabi. In light of all of those facts, Professor Heinsohn concludes that "it's over," and nothing can be done anymore to bring France back on track.

He could have pointed to additional facts. According to TIMMS, the performance of French students is below that of any other large EU member state. By comparison, in the UK's strongest region, Northern Ireland, 27% of all students are top math performers, more than ten times the percentage of France (2%). And based on what I hear from experts, the brain drain is massive, with a significant percentage of the best French engineers and scientists being hired by U.S. tech companies.

That is the backdrop against which Mrs. Loiseau wants Europe to make France stronger as it takes on tech giants. The alternative would be for France to focus on strengthening its own digital economy, but apart from the likes of Ubisoft and Voodoo, France is lost. Macron would like it to become a "Startup Nation," but Bloomberg and others have explained it's just not happening.

French politicians can't say so publicly, but since their country's failure in the digital economy is definitive, they're just interested in taxes and regulation. More than anything else, they'd like to get Europe to impose a Digital Tax. They won't ever stop pushing for it until they get it, but so far there's sufficient resistence. In terms of regulation, they want legislative measures as well as aggressive antitrust enforcement.

The EU Copyright Directive (officially: Directive on Copyright in the Digital Single Market) is a mix of (indirect) taxes and regulation: while Europe's market share among content-sharing platforms is extremely low (almost nothing but Spotify), the share of European creatives in the market for content consumed by European users is obviously far higher. Unfortunately, a liability regime that practically requires upload filters will cause a number of issues, and by now even the German coalition parties appear to realize that it was a big mistake to support the French proposal. Yesterday, Tiemo Woelken, a German social democratic MEP who opposes Article 13 (now Article 17; the "upload filter" paragraph), tweeted about a Reuters report according to which the German government is divided over the issue because Federal Minister of Justice Katarina Barley would like to attach a (legally non-binding) statement to the impending EU Council decision, according to which Germany would transpose the directive into national law without mandating upload filters, but Merkel's Christian Democratic Union/Christian Social Union opposes doing so. Technically, the German government would actually have to abstain as long as this disagreement isn't resolved, and an abstention would have the same effect in the EU Council as a No vote. Without Germany, there's no qualified majority as Italy, Poland, the Netherlands, Finland and Luxembourg already oppose the bill. We'll see what happens.

Brussels insiders expect that the next major digital policy battle in the EU will involve a replacement of the eCommerce directive (officially named Directive of the European Parliament and the Council on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market). The version that is currently in effect was promulgated in 2000. At the time, Google was two years old; Facebook was founded four years later, and it took another four years before Apple's App Store opened. It's foreseeable that EU politicians, with French parties at the forefront again, will try to seize this opportunity to further regulate the digital economy.

That's the wider context of Mrs. Loiseau's statement. It would lead too far now to go into detail on how the rest of Europe views this, but generally speaking, other southern European countries are pretty much on the same page, and in Germany the political establishment is fairly willing to support Macron as long as the negative effects on the German economy aren't too obvious.

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German government parties stall parliamentary process relating to EU copyright reform: democracy delayed is democracy denied

The infamous democratic deficit of the European Union is not just an issue relating to the EU institutions and their interinstitutional dealings, such as "trilogues" and similar negotiations. In democratic terms, the EU is a banana republic where votes are repeated until the result pleases the elites or decisions come into being by accident, such as the decision not to allow the European Parliament to vote on individual amendments to the copyright bill. But there's just as big a problem with the way the governments of most EU Member States sideline their national parliaments. In Sweden, the parliament's EU affairs committee tells its government how to vote in the EU Council (and there's a decent chance that Sweden will have to change its vote on the EU copyright reform bill from Yes to No soon, but the parliamentary decision isn't strictly binding).

What's happening in the same context--the EU Copyright Directive--in Germany is, however, another case of a government's contempt for the directly elected representatives of the people.

As per the current plan, the EU Council will try to adopt the copyright bill on April 15 at a Luxembourg meeting of the ministers for agriculture and fisheries. It wouldn't be a problem to adopt an uncontroversial bill without debate, and in that case it doesn't even matter what the ministers and state secretaries attending the meeting are primarily in charge of. But in the case of the proposed Directive on Copyright in the Digital Single Market (which will be less digital as a result), it's just an attempt to avoid public scrutiny by minimizing attention and making it impossible to have any substantive debate (which would require a different type of minister to attend).

On Friday, the Left Party group in the German Bundestag (federal parliament) announced a motion for a resolution calling on the German government to oppose adoption of the bill in the EU Council. The countries that opposed the political agreement in February collectively account for approximately 24% of the total EU population; with Germany's 16% on top, the 35% quorum for a blocking minority would be more than met.

A parliamentary resolution wouldn't be binding on the German government, but it would have political weight. I quickly authored a lobbying guide for German activists seeking to influence the Bundestag vote.

Yesterday (Monday), the official website of the German federal parliament announced a plenary debate for this week's Thursday (April 4) at 5:15 PM local time, initially indicating that there might or might not be an immediate vote. Today (Tuesday), they added that a second motion to the same effect had been brought by the libertarian Free Democratic Party (FDP).

But later it became known, based on tweets by Petra Sitte, a member of the German federal parliament from the Left Party, and by a staffer of the Left Party's parliamentary group, that the government coalition parties (Christian Democratic Union, Christian Social Union, and Social Democratic Party) had decided to refer the matter to the relevant parliamentary committees.

As a result, it's virtually impossible that the German Bundestag can hold a plenary vote on this matter--which would have forced CDU/CSU and SPD to come clean. So far the CDU/CSU and SPD groups in the German parliament are just hiding behind the European Parliament's decision (where almost all SPD MEPs voted against the proposal, while all but one CDU/CSU MEPs voted in favor), and behind the intergovernmental negotiations between Germany and France that led to this ill-conceived proposal (which may even deprive EU users of such services as Amazon's Twitch, as Twitch CEO Emmett Shear reiterated after the EP vote).

With the parliamentary process in Germany being stalled, the only way that the Bundestag could still hold a plenary vote prior to a "fait accompli" at the EU level would be if the EU Council delayed the adoption of the bill. Theoretically, Germany could ask for more time, pointing to the parliamentary process at home that should unfold. But that's not what that government intends to do.

Basically, it appears the Franco-German agreement on Article 13 (now Article 17) was all about Merkel giving Macron a kind of consolation prize. The Macron regime will probably go down in history as one of the least successful and, ultimately, least popular governments in French history, not only but also because of the Yellow Vests protests. Macron gave speeches and authored op-eds for newspapers all over Europe to promote his vision of closer European integration, especially in the area of economic and monetary policy. If it were up to Merkel herself, or her minister of economic affairs and longtime trusted sidekick, Peter Altmaier, she'd hand him everything he wants on a silver platter. However, she and her domestic allies know very well that Macron's most ambitious proposals would meet significant resistance in Germany (and also in other Northern European countries).

In terms of IT industry policy, what Macron really wanted was the "Digital Tax." In principle, Merkel would like that idea, but it would be viewed by the Trump Administration as an act of trade war, leading to retaliation against Germany's automotive industry. That's why Germany tried to appear constructive, but actually didn't want to support Macron's idea. With Article 13 (now Article 17) of the EU Copyright Directive, an indirect digital tax is imposed on content-sharing platforms--though Europe is going to simply cut its nose to spite its face as this will harm small European platform companies and European consumers.

In other words, Macron lost the real battle. He can keep talking and writing about the digital tax and closer European integration, but he won't get even 10% of what he's looking for. His country is in disastrous shape: formerly known for a high-quality education system and smart population, it has statistically the least math-savvy students of all large EU Member States, with only 2% of them reaching the top performance level in the international TIMSS study applying uniform standards to test-takers around the globe. By comparison, Singapore is at 50% (25 times France), South Korea at 40% (20 times France), Russia at 20% (10 times France), the United States at 14% (7 times France), Germany at 5% (like Turkey), and France can only "compete" and compare with Persian Gulf states. There are some extremely smart, hard-working and talented people coming out of the French education system, but many of them get hired away. The brain drain won't stop, and bad policies such as the EU Copyright Directive will only serve to exacerbate the problem. Macron will keep talking about France as a "startup nation," but that's lip service at best and reality distortion at worst.

The German government parties want to help stabilize the Macron regime. Article 13 (now Article 17) was a stupid concession, and Merkel may have underestimated how many people would be outraged and worried--and what damage this would do to the way many ordinary citizens perceive EU democracy. Those parties are at risk of losing an entire generation of voters, and the leadership of the Social Democratic Party appears unrealistic enough to believe that by speaking out against upload filters while allowing the government to adopt the bill in the EU Council (and preventing the national parliament from holding a plenary vote in time), they can mislead people. Just like Merkel's CDU/CSU, the SPD may lose an entire generation of voters as a result of this. Case in point, "Herr Newstime," one of Germany's most popular YouTubers, announced a few days ago that he was leaving the SPD. The parliamentary resolution would have been one last chance for the SPD to correct its error and oppose Internet upload filters.

The Internet will figure this out. And the Internet won't forget.

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The EU's digital tax bill would burden COUNTLESS tiny app developers around the globe

I couldn't google a single article or statement higlighting the two ways in which even small mobile app developers will be affected by the digital tax the European Commission proposed on Wednesday (see yesterday's post and an October 2017 piece), so I'll just explain the problem here.

Most of the reporting and commentary on yesterday's Commission initiative is limited to one of the two proposals that were made simultaneously: the interim bill. On the EU Commission's website you can see that the March 21 announcement involved TWO DIFFERENT "Proposal[s] for a COUNCIL DIRECTIVE." The first one is a bill "on the common system of a digital services tax on revenues resulting from the provision of certain digital services" (PDF), and I'll refer to this as the "interim bill" so as to distinguish that short-term transitional set of rules from the actual mid-term plan, which is a bill "laying down rules relating to the corporate taxation of a significant digital presence" (PDF). The interim bill is intended to be replaced by the actual bill whenever the latter takes effect--and the EU wants its member states to begin working on both immediately.

At yesterday's Commission press conference, and in most of the media coverage, the focus was just on the interim bill. The interim bill is narrower than the actual bill in the following two ways:

1. The interim bill has very high revenue thresholds, which all by themselves limit the number of companies potentially affected. We're talking about (as a power of ten) a hundred companies.

2. The interim bill also defines the types of taxable revenues far more narrowly. That's why its title refers to "certain digital services" (emphasis added). Basically, the interim bill requires companies to sell user data or provide an advertising interface. It doesn't mention subscription revenues, for instance.

There's an "impact assessment" in either proposal, but I couldn't find any reference to mobile app developers. However, either bill specifically lists apps among the types of "digital interface" the tax proposal relates to. Article 2(3) of the interim bill and Article 3(2) of the actual bill are identical:

"'digital interface' means any software, including a website or a part thereof and applications, including mobile applications, accessible by users" (emphasis added)

Also, either bill defines user as "any individual or business."

Contrary to just targeting the likes of Google and Facebook, a huge number of app developers around the world will be affected by what the EU is trying to do. (Whether the EU will ultimately get anything done remains to be seen and is doubted by some.)

There are two ways in which even countless small app developers would be affected if the EU got its way. The first way requires you to have a significant (but not huge) number of users, and then the money you will have to spend on accounting and tax advice services will hurt most of you even more than the actual tax. The second way will affect many of you regardless of the exact number of users you have in the EU because Apple and Google would most likely pass certain costs on to you. The second way doesn't place an administrative burden on you, but it, too, costs you money.

1. The actual bill would (if passed) affect you if your app has more than 100,000 users during a fiscal year in a particular EU member state. There are many apps out there that have more than 100,000 users in a country like Germany (more than 80 million inhabitants), France, or Italy (the latter two each have more than 60 million people).

   If you have more than 100K people using your app in a given year (as the sum of first-time users who just downloaded and recurring users from previous years), the bill would (if passed) apply to you even if your revenues were minimal! Article 4(3) of the actual bill defines a "significant digital presence" (the basis for falling under the new EU digital tax) as existing if "one or more of [three] conditions is met," so it's sufficient if (regardless of the other two thresholds, which relate to revenue levels and the number of formal business contracts) "the number of users of one or more of those digital services who are located in that Member State in that tax period exceeds 100 000."

   You know what this means in practice? You would have to file a tax declaration with the tax authorities of one or more EU countries such as Germany, France, Italy, whatever. For small app developers, the administrative effort of having to do this, in a foreign jurisdiction and language, and the potential cost of requiring expert advice (from accountants, tax advisers, or tax lawyers) would be a very significant burden.

   This fact alone shows that the EU's proposal is half-baked at best, insane at worst, and displays gross incompetence and an anti-business ideology. That's why I found it so telling that the EU commissioner who appeared at yesterday's press conference used to be a member of a radical communist group. His Trotskyist (that's the most radical denomination of communism) friends must be proud of Mr. Moscovici.

2. Even if you don't have 100,000 users in a given EU member state during a fiscal year, and even under the interim bill, the EU's proposal(s) would (if passed) cost you money!

   That's because of how Apple and Google will be affected directly, with us app developers being affected indirectly. What's explained in the remainder of this post is unrelated to your number of users or your own revenues.

   • Under the actual bill, Apple's App Store and Google's Play Store revenues (whatever users pay for paid apps or in-app purchases) would be subjected to the EU tax.

     Just like we are paid our 70% (or 85% for qualifying subscriptions) of ex-sales-tax/ex-VAT revenues, the EU tax will then further reduce the revenues of which we receive 70% or 85%.

   • Under both the actual bill and even the interim bill, those of us generating in-app advertising revenues through Google AdMob would be affected, whether we're Android or iOS developers.

     I love Google's mobile advertising services, both as a great vehicle for acquiring users (I have an amazingly attractive cost per acquisition through Google AdWords because of a very effective HTML5-based playable ad, which Google uniquely empowers me to run) and as an app monetization vehicle (all ads shown in my app--banners, interstitials, videos, playable ads--are served by Google). I'm so grateful for the great support I've received from Google that I won't comment publicly on Oracle v. Google anymore (my positions on API copyright are still the same but I won't reiterate them).

     Google is the number one target of the EU's digital tax plans, so if the EU got its way, my own ads in the EU and my revenues generated through showing ads in my app to EU users would be affected.

     My ads in the EU would become more expensive, and my ad income in the EU would be reduced. Again, even under the interim bill, not just the actual bill.

   • What I just explained would affect not only Android, but also iOS, app developers relying (like I do) on Google's advertising services. In addition, iOS app developers would be affected with respect to their placement of Apple Search Ads. I don't know whether Apple's Search Ads business alone meets the revenue thresholds in the interim bill (50 million euros a year in the relevant market), but it undoubtedly would fall under the actual bill (the number of App Store users alone would take care of that, and the related revenue threshold would only be 7 million euros). So Apple would have to pay the EU digital tax on its European Search Ads revenue. It appears (based on comments on discussion boards) that Apple Search Ads are already a key part of the advertising mix of many app developers. I tried them for a short while and for my app they worked out a lot better than non-interactive Facebook ads and AdWords text ads, but I'm not using them anymore since Google AdWords delivers several times better results thanks to the playable ad format, which Apple doesn't support. But my situation is almost unique. For most app developers it's actually a heaven-sent opportunity to advertise their apps directly on the App Store, and that advertising vehicle would become 3% more expensive as a result of the EU's plans.

What the EU has in mind is bad for app developers everywhere in the world, whether they're based in the EU or outside. At the end of the day, this will affect EU consumers. But I can't think of a single pro-consumer initiative the EU has ever taken apart from the laudable exception of abolishing mobile phone roaming charges...

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Transatlantic trade war must be blamed on dysfunctional, self-serving, protectionist EU -- not on President Trump

[Update] You can't make this up: the EU's digital tax plans are just being presented and explained at the EU Commission's daily press briefing by commissioner Pierre Moscovici, "[p]reviously a member of the Trotskyist group the Revolutionary Communist League" according to Wikipedia... [/Update]

This is a broader follow-up to an October 2017 post, "The EU's definitive defeat: digital tax plans and a declaration of surrender to Silicon Valley."

Today the European Commission will propose, or by the time you read this, has proposed, a new digital tax of 3% on large digital companies' revenues in the Single Market. Google and Facebook are going to be affected, but they have higher margins than companies like Amazon, which could be hit really hard depending on what exactly the EU will decide in the end, if and when its member states reach a unanimous agreement. Some smaller countries such as Ireland and Luxembourg have a strong interest in the status quo. Theoretically, they could veto any decision. However, they would not be able to prevent larger countries from imposing a digital tax on their own, which is why some horse-trading might ultimately happen.

In order to understand transatlantic dynamics, it's key not to define the term "trade war" too narrowly. The narrowest meaning of the word would relate to import duties. A slightly less narrow term furthermore includes regulations, of which the EU notoriously has many, and many of which were created by the EU at the behest of European industry bodies seeking to erect practical barriers to entry for foreign--in many cases American--businesses. Typically, intellectual property rules are considered important regulatory tools with trade implications: weak protection can favor local pirates, strong protection can shield local patentees from competing on the merits of their products, or at least give them unfair leverage. And there's the intentional devaluation of a currency. Subsidies, too (thinking of Airbus, for instance). But even all of that is still not the whole picture. Let's not forget about antitrust enforcement and--not only today--taxes.

We're not merely on the verge of a transatlantic trade war. It's already in full swing, and the EU is pushing the escalation button. The Trump Administration has concluded that enough is enough, but it didn't fire the first shot. Before any new U.S. import tariffs may take effect, the EU has drawn first blood, and today's digital tax plans are part of that.

Most EU citizens, to the extent they're even interested in trade policy, are completely misguided, which is mostly the fault of a mendacious EU, dishonest politicians in EU member states, and largely incompetent and unbalanced reporting by mainstream media in the largest EU member states on the continent (to exclude the UK for sure).

Tariffs

As a result of fake news, the average European, even the average European with an interest in these issues, simply doesn't know some simple facts, and even some reporting in the U.S. appears unbalanced because it's driven by a desire for bashing President Trump. Just three eye-opening facts that Germany's most renowned economist, Professor Hans-Werner Sinn, mentioned in a TV talk show this week, where he also criticized German media for not mentioning such key facts:

• Tariffs are the EU's primary revenue source. Even the European Commission's website lists "mainly customs duties on imports from outside the EU" as its "traditional own resources" before anything else. That's why the Brussels bEUrocracy stands to gain from a trade war.

• While U.S. customs duties on foreign cars (except for some niche categories) amount to only 2.5%, the EU charges 10% on any vehicle imported from outside the bloc.

• EU import duties on meat are so high that European consumers have to pay prices that are roughly 20% higher than, for an example, in the United States.

The euro

The euro currency is simply the biggest financial crime committed in history against the citizens of any territory. Economists had warned early on that it would be completely irresponsible to create a common currency for disparate countries that have different economic and fiscal policies, including among other things widely varying attitudes toward public debt and the extent to which government should run the economy. The European Central Bank, which I usually just call the "European Criminal Bank", is the only lending system in the world where the debtors can set their preferred interest rate and determine the amounts made available to them. That's because each country, regardless of the size of its population or economy or of its contributions to that fundamentally flawed system, has one vote. In my observation, the one-vote-per-member-state system is a typical characteristic of many corrupt organizations, including major international sports bodies or the European Patent Office. It turns majority building into a race for the bottom, with sports bodies and the EPO finding it easier to buy votes from small, poor countries, and in the ECB's case, the problem is that Europe's uncompetitive south (which is not going to become competitive again anytime soon) simply runs the ECB (which wouldn't change even if the ECB had a president from a northern country since the president can't decide anything against the council).

Not only is the euro system unique because no other lending system would turn over all key decisions to debtors but this system has also managed to be bad for the citizens of all of its member states except for a few small "leeches" such as Luxembourg. The ECB is a redistributive system, and normally those systems are zero-sum games: what some give, others take. Not so with the euro: everyone (except for those few small leeches) loses, just in different ways and for different reasons. Germany, a country that is too much focused on the darkest 12 years of its history to defend the interests of its citizens and has less balanced and less competent mainstream media than even some far smaller neighbor countries with the same language, has practically assumed liabilities to the tune of two trillion euros (roughly as much as Germany's entire public debt as it is currently in the books) for those uncompetitive Mediterranean countries. A German citizen who would put 50,000 euros in the bank under today's conditions, with the ECB (because of lenders calling the shots) artifically keeping interest rates down, but inflation being significant (not high, but still), would lose the purchasing-power equivalent of a small Volkswagen car over the course of 20 years. Normally, some other countries' citizens would have to be the beneficiaries. But apart from the "leeches," no one is benefitting. In Italy, that completely overindebted country in which organized crime has greater revenues than any legitimate company, industrial production is still 20% lower than it was 10 years ago. In Greece, wages are about 3 to 4 times as high as in two non-eurozone neighbor countries (Bulgaria, Turkey) that are actually in comparable situations (relating to worker productivity etc.) apart from the euro. As a result, Greece has become a huge importer of olive oil because it has become too expensive to make that product in Greece itself.

The trade war implication of the euro is simply that German exporters don't have to compete fairly: their currency would be far more valuable if Germany didn't have a common currency with some large uncompetitive economies. Currency exchange rates play a role. I remember, from decades ago, that advertisement in the U.S. which said that for the price of one Mercedes you could afford two Cadillacs plus a driver. That was long before the euro. So, simply by being a member of the eurozone, Germany is nowadays engaging in currency devaluation. It still doesn't benefit German citizens since those large corporations don't pay a lot of taxes, their shareholders alerady are or can at any point leave for foreign countries, and their executives can and will leave the country whenever it's beneficial.

President Trump often points to Germany's huge trade surplus as a problem. He does have a point. The way I view it, a significant part of those exports is just due to the euro system: first, the currency devaluation effect I just mentioned, and second (but that's not of concern to the U.S.), Germany inflates its exports by lending money (through the ECB) to countries that couldn't afford that many luxury cars and similar goods if they had to produce the necessary income first or if they at least had to borrow money in an undistorted market.

Intellectual property enforcement

With respect to IP, the U.S. is more concerned about China than the EU. But one should keep an eye on IP in the context of transatlantic trade:

• The European Commission's guidelines on standard-essential patents (SEPs) are, fundamentally, a good thing. But there was a lot of lobbying pressure from old European companies increasingly reliant on patent license fees.

• Whenever the Unitary Patent Court (UPC) will be ready, Europe will become a paradise for patent trolls and the likes of Nokia and Ericsson.

• There are constant attempts to favor open-source software over other licensing models. That can benefit U.S. companies such as Red Hat, but it does have negative effects on European opportunities for such companies as Microsoft.

• The copyright picture is mixed. In some ways, European copyright enforcement rules overshoot, but the scope of copyrightability appears broader in the U.S. than in Europe.

Competition enforcement

Apart from cases (such as Qualcomm) in which the EU takes positions consistent with those found in other jurisdictions, its competition enforcement activity has increasingly, especially under competition commissioner Margrethe Vestager, become excessive. Mrs. Vestager is basically on a crusade against Silicon Valley. The longer the EU's Google cases take, the less I believe in them, and the tax case (styled as a state aid case) against Apple is an unbelievable absurdity.

Considering the combination of issues the tech industry faces in the EU, it doesn't make sense to me that major Silicon Valley companies engage in Trump-bashing all the time, as I already said in my New Year's post.

Just to avoid any misunderstanding, I do understand and appreciate the benefits of fair trade, such as specialization. So I'm not arguing isolationism. It's just about who's to blame. Consumer benefits are not what the EU has in mind. It never did in any context apart from mobile phone roaming charges.

The EU is an economic failure. There's no way that it's ever going to become a major player in the digital economy. It's simply getting squeezed between the U.S. and East Asia. The real hawks in this trade war are not in Washington, D.C., but in Brussels and in the governments of such countries as France and Germany. The Paris-Berlin axis is a recipe for failure, with Macron simply wanting redistribution and Merkel and her minions being happy to oblige. They'll be the driving forces, along with the EU institutions, behind those terrible "digital tax" plans and the "trade war."

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The EU's definitive defeat: digital tax plans and a declaration of surrender to Silicon Valley

What you're reading here is a highly skeptical take on the EU's innovation policy and economic outlook from an EU citizen who will leave the EU as soon as possible (more on my personal conclusions at the end of this post).

The EU has a huge competitiveness issue already, and due to the eurozone's lack of innovation, especially in its Mediterranean member states, the sovereign-debt crisis is never going to be resolved. The European Central Bank is, in some ways unlawfully, keeping Europe's south afloat and will do so for some more time, but at some point there will be a crisis of unprecedented proportions--either an acute and dramatic crisis or an extended depression from which the eurozone as an economic area won't really recover.

In the 21st century, innovation is the only way that industrialized countries can achieve more than 1% or 2% of year-on-year organic growth--obviously short of an unexpected discovery of natural resources, which is not realistically going to happen in the EU, or wage cuts in underperforming countries that are even less realistic than the existence of huge undiscovered gold mines in France, Spain, and Italy. The Finnish economy, for example, was performing extremely well while Nokia was setting new records all the time, but shrank by about 9% in a single year as a result of the iPhone/Android revolution. And it's shrinking again. Countries like Spain and Italy--and even France--never had a Nokia in the first place. The Mediterranean economies are strong in industries that mostly existed already in ancient Roman times (agriculture, construction, with even textile going to Asia). Tourism is, relatively speaking, the most modern industry that is strong in those countries, and the EU predicts about 5 million more tourists per year, which I don't doubt but it's not going to do much about youth unemployment rates of 46% in Greece, 38% in Spain, 36% in Italy, and more than 20% in France.

The EU wanted to become "the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth" by 2010, and failed, as even the then-prime minister of Sweden conceded in 2009. For example, per-capita GDP in the EU was less than $38K last year vs. $57K in the U.S.

By now the EU appears to have given up on its ambitions for the digital economy. Instead, its focus is on a new tax that could lead to a full-blown trade war with the U.S. and would definitely harm European companies and consumers in the end.

I'll write about the tax plan again soon because I'll try to make a contribution to the mobilization of app developers and other European technology companies against that plan. In this post, I'll connect a few dots to show the broader picture.

In a Q&A document on the EU's digital tax plans, the EU recognizes the increasingly important role of digital business to the economy:

"In 2006, only one digital company was among the top 20 firms by market capitalisation, accounting for only 7% of the market capitalisation. In 2017, 9 out of the top 20 companies were technology companies accounting for 54% of the total top 20 market capitalisation. Between 2008 and 2016, the revenues of the top 5 e-commerce retailers grew by 32% on average per year. During the same time period, revenue in the entire EU retail sector grew on average by 1% per year."

The largest companies in the digital economy are U.S. and Chinese companies, plus South Korea's Samsung. As a Wikipedia page shows, no EU company has been among the world's largest 10 companies (from all industries, but with digital businesses now leading) by market capitalization since Royal Dutch Shell in the second quarter of 2014. That's a huge failEUre, and a strategic issue because it means that to the extent Europe has any innovative businesses at all (such as SAP), they're not at the top of the M&A food chain.

While that tax plan Q&A still claims the EU wants its digital startups to succeed, the EU's digital industry commissioner has just given an interview to Frankfurter Allgemeine Zeitung, in which she says Europe doesn't need a company like Google. How little weight the digital economy has in the EU is reflected by the commissioners assigned to that area of responsibility. Presently, the EU's digital commissioner is Mariya Gabriel, a young Bulgarian politician with an even less impressive track record than her technology-illiterate predecessor, Germany's Guenther Oettinger, who became the laughing stock of many people in the EU tech industry. Mrs. Gabriel said in the aforementioned interview that the EU should focus on fields such as nanorobotics, security chips, and "automotive digitization", where she says EU companies are leading the way. I checked on who the current leaders in nanorobotics are and found more U.S. than EU companies among the top 10, with all of those EU companies being small enough to be acquired sooner or later, and I've previously outlined my thinking on the automotive future.

There are structural reasons for which the EU not only lacks major players like Apple and Google but why it's highly unlikely that any of its startups will, as an independent company, ever reach that level:

• The U.S. market is the most important single market, followed by China. That's why I decided to focus on the U.S. first (we'll create content for other markets later), just like this blog has more readers in the U.S. than anywhere else, but EU companies usually serve their domestic market first. No matter how often the EU talks about the "Digital Single Market" (DSM), which is also the context of those terrible digital tax plans, it simply won't be a single market like the U.S. market anytime soon. Multilingualism is a major challenge for the EU, but most countries are too proud and too lazy to think for even one second of adopting English as an EU-wide official language. Therefore, startups can't address the EU market as a single market. It's about a lot more than just translating one's product. For example, there's no major tech news website or IT magazine that people read across the EU.

• That EU tax document refers to something that is a huge factor indeed: network effects. It's not just that large U.S. companies benefit from network effects. In a way, the U.S. tech industry as a whole has the equivalent of network effects because it attracts and funds many of the world's most talented technologists. There's a virtuous circle involving business angels (many of whom made a fortune through stock and stock options in previous-generation tech startups) and institutional investors of the kind the EU won't have.

• Investor mentality also plays a role. In the EU, investors generally prefer niche businesses, while in the U.S., there is more of a willingness to "think big" and place bets on what EU investors would consider unrealistic long shots.

• Partly as a result of unselective migration, in many cases combined with dumbing-down educational policies, the eurozone's population is, on average, becoming weaker and weaker in math according to the Trends in International Mathematics and Science Study (TIMSS). Non-eurozone industrialized countries take fairly high percentages of their 12-year-old students to the top performance level (Singapore: 50%; South Korea: 40%; Northern Ireland: 27%; Russia: 20%; United States and Kazakhstan: 14%), while the largest eurozone countries perform worse each time the study is repeated. Germany, for instance, dropped by 10 ranks between 2007 and 2012 and is now at 5%, which makes it the one-eyed among the blind among major eurozone economies (Italy 4%, Spain 3%, France 2%). The French number is an unbelievable disaster. If you looked at an average class of 30 students in Northern Ireland, eight of them would reach the top level, while in France you'd need two classes of that size to find just one such student. But to address the root causes of that problem would require French politicians to say and do highly unpopular, politically-incorrect things. That's why no one's talking about the big elephant in the room.

Contrary to what the EU says, its tax plans won't make any EU company more competitive. Also, it doesn't make sense that U.S. and other digital businesses "can take full advantage of the networks, infrastructure and rule of law institutions available in EU Member States, without paying any tax in that country." Seriously, how many lawsuits have Apple's App Store or Google's Play Store given rise to in the entire EU? Few and far between I would guess. Do they use such infrastructure as roads and bridges? Not really. It just comes down to cheap electrical and optical signals going over the networks, and the network traffic caused by the download of an app is typically less than a couple of minutes of even a low-quality video stream.

Unfortunately, the Commission's tax initiative has drawn support even from normally libertarian, free-market and fiscally conservative parties such as Germany's FDP, whose secretary-general said last week that she wants to impose higher taxes on the likes of "Apple, Google, and Facebook."

There is some resistance from such countries as Ireland, and unanimity would be required for an EU-wide rule, but something bad could come out of this. Ideally, the EU would like to address the issue at an even higher international level (OECD). If not, the Commission will make a proposal for the EU to act unilaterally. And then, if some countries tried to block the plan, the largest EU member states such as Germany and France might just go ahead without the rest of the EU--and once that threat becomes real, an EU-level agreement might materialize.

Whatever may or may not happen in the end, it's already clear that the EU's dubious "state-aid case" against Apple was just an attempt by the Commission's competition enforcement arm to position itself as the vanguard of the EU's tax crusade against the digital economy's winners. This is just the behavior of sore losers.

I wouldn't have been against a small EU consisting of quality countries in economic and educational terms, with everyone giving up national sovereignty for a greater good. But an unselective and expansive EU that consistently puts the cart before the horse (common currency for disparate economies without a common economic and fiscal policy; internally open borders without effective external controls) was a bad idea.

A few days ago, the European Central Bank announced that, after spending (literally) trillions of euros buying government debt mostly from the likes of Italy and Spain, it was now going to reduce the extent of that program to 30 billion euros a month. By comparison, that is about 10% more than Germany's federal budget. Also, the ECB already owes Germany approximately 800 billion euros through its Target 2 system (with Italy and Spain being the primary net lenders, and even Greece being a significant net recipient). The only way that those countries could ever repay their debts would be sustainable, organic, rapid economic growth. The ECB says that the need for growth is why its "quantitative easing" must continue, and mainstream media in Europe largely parrot that pretext (and even those who criticize the ECB don't tell the whole truth about the mess). But quantitative easing and zero interest rates don't change the fundamental problems I mentioned above. It certainly won't hone anybody's math skills or prevent European tech companies from being bought by U.S. and Chinese acquirers. Instead of spurring growth, the ECB simply enables southern European governments to avoid hard and unpopular decisions. As their excessive borrowing continues, the mess gets bigger until the system implodes.

Just like the ECB's quantitative easing doesn't benefit innovative businesses, the kind of digital tax the EU has in mind would just benefit governments in the short term.

Finally, the kind of disclosure I promised further above. I must admit that I was totally against the 1992 Maastricht Treaty (the treaty that converted the European Community into the European Union and laid the foundation for the euro currency) and now, 25 years later, everything that could have gone wrong with the euro currency and free movement (and that experts had warned against before those fatal decisions were taken) has indeed gone wrong. In 2004-2007 I opposed various EU policy initiatives and consistently got along very well with the "Brexiteers" in the European Parliament. I do sometimes support EU competition cases if they involve genuine antitrust and merger control issues, but not if they're "total political crap".

I don't want to be a resident of the dysfunctional EU anymore. I'm on my way out of the EU as we speak. After years of development, I'm finally about to launch my app, which has already been approved by Apple for App Store distribution, in the U.S. market. I haven't announced the name of the product and of my company on this blog or on Twitter yet, but I will soon. All that I have said so far is that it's going to revolutionize the trivia game market. And it will.

Once my app generates a certain level of revenues, which I'm sure it will soon (just don't know exactly how much and how soon), I'll be in a position to relocate to the U.S. on a permanent basis. That step is actually overdue. As a matter of fact, this blog has widely been perceived as a U.S. tech/IP law/policy blog (even by the Library of Congress). I've always considered, despite its challenges, the United States the greatest country on Earth, and I've traveled a lot more in the U.S. than in Europe already. Now it's not just about personal preferences or the greater opportunities I see in the U.S.--I'm really deeply convinced that the eurozone is on the completely wrong track without any hope that things could somehow work out in the end. The overindebted economies of the Mediterranean region won't recover, and Germany isn't strong enough to support them forever. For example, Italy technically owes Germany (through the ECB) many hundreds of billions of euros, but Germany's trade surplus over Italy is just on the order of 10 billion euros a year. The numbers just don't make sense. Once Germany's pension system becomes unsustainable due to the demographic gap (by the 2030s at the latest), it will be game over for the eurozone, if not before.

Should the EU levy a special tax on digital businesses, its innovation problem would only exacerbate. It's worse than merely rearranging deck chairs on the Titanic.

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