US Pulls Out Of Global Digital Tax Talks

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European Union warns it will impose its own digital tax on technology giants, after the United States withdraws from global tax reform negotiations

The European Union has again warned that it press ahead and impose EU-wide tax on online service on tech firms by the end of the year.

The warning came after the United States on Wednesday withdrew from global tax reform negotiations being organised by the Organisation for Economic Cooperation and Development (OECD).

It had been organising and developing global reforms with nearly 140 countries, over where multinational firms should be taxed.


European warning

The OECD had earlier this year warned the UK and other countries to hold off on its plans to introduce their own digital tax.

Spain this month became the latest country to propose a levy of 3 percent on the local digital revenue of companies with annual global sales of more than 750 million euros.

But now the prospects of a trade war have been raised after the US walked away from the OECD talks this week, saying talks had made no progress, Reuters reported.

“A trade war, especially at this point in time, where the world economy is going through a historical downturn, would hurt the economy, jobs and confidence even further,” OECD Secretary General Angel Gurria was quoted as saying, urging all sides to reach a deal.

The OECD had been hoping to get a global agreement in place by the end of 2020, but that deadline is looking increasingly unlikely after the US pull-out, coupled with upcoming US Presidential elections in November.

French Finance Minister Bruno Le Maire reportedly said France, Britain, Italy and Spain had jointly responded on Thursday to a letter from US Treasury Secretary Steven Mnuchin announcing the pullout.

“This letter is a provocation. It’s a provocation towards all the partners at the OECD when we were centimetres away from a deal on the taxation of digital giants,” Le Maire told France Inter radio.

Spain’s government meanwhile said it and other European nations would not accept “any type of threat from another country” over the digital tax. Italy said it was committed to a global deal.

“The European Commission wants a global solution to bring corporate taxation into the 21st century,” European Economic Commissioner Paolo Gentiloni reportedly said.

“But if that proves impossible this year, we have been clear that we will come forward with a new proposal at EU level,” he said, saying taxes could be introduced even without a deal.

Tax dispute

Tech companies have long been criticised by lawmakers for their tax practices that sees them reducing their tax bills by booking profits in low-tax countries (such as Ireland) regardless of the location of the end customer.

Plans for an EU-wide digital tax have previously failed upon the objections of certain countries, forcing member states, most notably France, to push ahead with their own national levies.

The US has already investigated France over its digital tax policy, which has already been passed by French lawmakers.

That dispute was settled when France offered to suspend its digital tax on tech companies’ income in France until the end of the year while the OECD negotiated new rules for the cross-border taxation of big digital companies.

But now Le Maire reportedly said France would impose its digital services tax this year, whether or not Washington returned to negotiations.

“No one can accept that the digital giants can make profits from their 450 million European clients and not pay taxes where they are,” he reportedly said.