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Europe initiates review into new tax law’s legal compliance

The European Union has launched a review into whether tax-cut legislation passed by the U.S. Senate over the weekend runs afoul of international trade and tax laws.

Germany and France initiated the investigation, which tasks the European Commission and the EU’s legal service to check if the proposed U.S. policy shift violates international laws, according to acting German Finance Minister Peter Altmaier.

“We need to verify in what way the U.S. proposals affect tax competition,” Altmaier told reporters in Brussels after a meeting of EU finance ministers, where the concerns were addressed. “We need to check whether we have to act in regard to double-taxation agreements.”

The Republican-led effort to reform the U.S. tax code, which would cut the corporate rate to 20 percent from 35 percent, has caused jitters beyond Europe’s borders, with Chinese officials expressing worries that a sweeping policy shift could negatively impact domestic markets. Finance ministers, who discussed the issue over breakfast on Tuesday, also expressed concern that the legislation would affect transparency and asked if the U.S. would continue to share tax information.

The world’s largest trading bloc is worried that some provisions in the U.S. tax bill currently being debated in Washington could result in a double taxation of European companies, according to EU officials. The Senate version of the bill still needs to be reconciled with a version passed by the House of Representatives before it can be signed into law by President Donald Trump.

“There are some elements of preoccupation — some discriminatory measures — and the possibility that some parts of the reform will violate World Trade Organization rules,” Spanish Economy Minister Luis de Guindos said in Brussels on Monday.

Senate Republicans approved the most sweeping rewrite of the U.S. tax code in three decades by a 51-49 vote on Saturday, inching closer to a much-needed policy win for their party and the president. While both the Senate and House versions of the bill share common top-line elements, negotiations on individual provisions inserted to win votes, particularly in the Senate, may be protracted and difficult.

After the Senate vote, Trump said on Twitter that he looks forward to signing a final bill before Christmas. Vice President Mike Pence tweeted that a pre-Christmas tax cut would be a “Middle-Class Miracle!”

Portuguese Finance Minister Mario Centeno, who was elected the new head of the Eurogroup Monday, said European nations need to consider the implications of the U.S. tax cut on the competitiveness of their own economies.

“It’s really important for the euro-area competitiveness to follow developments around the world,” Centeno said on Bloomberg TV on Monday. “All shocks to the constructive equilibria in the world need to be considered and certainly the domestic policy of the U.S. is of major importance to us.”

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