Global tech tax gains steam after nations set December goal

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The threat of a new transatlantic trade war diminished after 137 countries agreed to continue negotiations aimed at creating rules for taxing multinational technology companies that receive foreign revenue.

Officials meeting at the Organization for Economic Cooperation and Development in Paris agreed to convene again in July in Berlin to continue talks seeking to clinch a global accord by the end of 2020, according to a Friday statement.

“It is more urgent than ever that countries address the tax challenges arising from digitization of the economy, and the only effective way to do that is to continue advancing toward a consensus-based multilateral solution to overhaul the international tax system,” Angel Gurria (pictured), secretary general of the OECD, said in the statement.

Progress on a global accord may cool tensions between European nations that are concerned current tax laws don’t properly account for a worldwide, data-driven economy, and the U.S., which doesn’t want its tech companies to be treated unfairly. American officials have threatened to impose tariffs on any country that institutes a digital tax, which would likely elicit retaliatory measures from the European Union.

Tariff threat

France was the first European country to impose a digital services tax, instituting a 3 percent levy last year that would hit the revenue of large tech firms including Google, Apple Inc., Facebook Inc. and Amazon.com Inc. The French government agreed last week to delay collecting the tax while work was being done on a global level; if nothing is agreed by December they’ll collect the 2020 dues.

The U.S. initially threatened tariffs as high as 100 percent on $2.4 billion of French goods in response to the French law. The European Commission, which handles trade matters for the EU, said it would consider “all possibilities” if Washington imposed sanctions.

European Commissioner for Economic Affairs Paolo Gentiloni told Bloomberg TV this month that if the OECD effort fails then the EU will push for a bloc-wide digital tax of its own. Chancellor of the Exchequer Sajid Javid also said that the U.K. plans to go ahead with its own tax in April.

But any truce over digital tax could prove fragile as there is some way to go in talks before negotiators can get into the mechanics of how new tax rules would work. There is also a lingering dispute over how obligatory the new rules would be, after the U.S. proposed in December that a global digital tax regime should be a “safe harbor” that companies could opt into.

‘Safe harbor’

The OECD has warned that introducing the notion of “safe harbor” could make it more difficult for the negotiations to advance, and said that members this week “expressed concerns” about the approach. Others, including France, have warned it would be impossible to agree on tax rules that are effectively optional.

The U.S. needs to provide negotiators from other countries with details on what it means by safe harbor, said Pascal Saint-Amans, director of the center for tax policy at the OECD. He was skeptical the U.S. request could ever be part of an international agreement.

“The initial reaction of members was not enthused, to use an understatement,” he said. “So today, if you ask me if there is a prospect of consensus of everyone agreeing implementation will be through a safe-harbor idea, I think the chance of success would be very low, extremely low, close to nil.”

William Horobin
Bloomberg News