EU sues US over IT tax loophole

The EU has filed suit against the US, claiming an American tax loophole negatively impacts European high-tech companies.

Under American trade law, US companies can route their exports through tax-free havens such as the Virgin Islands, thus avoiding tax on their export profits. The US recently extended the law to software companies.

The EU claims the tax break amounts to a $1bn boost for US high-tech companies in a market they already dominate. EU Trade Commissioner, Sir Leon Brittan, complained that the loophole gives US technology companies an unfair advantage and is in violation of World Trade Organisation (WTO) rules.

The US insists its laws fall within WTO regulations.