France, U.K. offer to limit digital tax after U.S. threat

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France, the U.K., Italy and Spain offered to limit the scope of a proposed global digital tax, a concession after the U.S. threatened to hit those countries with tariffs if they moved ahead with levies on tech companies.

This approach “would considerably ease the task of achieving a consensus-based solution and make a political agreement within reach this year,” according to a letter to U.S. Treasury Secretary Steven Mnuchin obtained by Bloomberg News.

The finance chiefs from the four countries offered to proceed with a “phased approach” that would initially only include automated digital services companies. It’s the clearest indication yet of Europe’s negotiating strategy on what has become a politically loaded issue with big economic implications.

Attendees work on laptop computers during the Google I/O Annual Developers Conference in San Francisco.
Attendees work on laptop computers during the Google I/O Annual Developers Conference in San Francisco.

The U.S. this month started an investigation into digital taxes that are being considered by several of its trading partners, including the four signatories of the letter. A similar investigation into France’s tax led to the threat of tariffs.

The Organization for Economic Cooperation and Development, which is developing the global tax plan, is pursuing two types of businesses, automated digital services, like online search engines and social media platforms, and consumer-facing businesses, that sell goods and services.

A French finance ministry official said the European offer wasn’t a concession to Washington and that the U.S. had initially proposed expanding the tax to include non-digital companies. The official, who asked not to be identified because the discussions are private, said France’s primary objective of getting a digital tax in 2020 hasn’t changed.

The tax is an effort to capture the profits of businesses with little or no physical presence in a market where they do business. Talks have been ongoing at the OECD since 2016 to try to form a joint set of rules.

— With assistance from William Horobin

Bloomberg News
International taxes OECD Tariffs Steven Mnuchin Treasury Department