A U.S. proposal on how to tax U.S. tech giants met broad opposition just days after a trade battle over the issue was averted, reflecting continued tensions between Washington and Europe on the divisive issue.
Governments from 137 countries met this week to discuss a new agreement on taxing multinational companies, including digital juggernauts such as Facebook, Amazon and Google.
However, almost all of the states took issue with a U.S. proposal that would allow those businesses to choose whether or not to be subject to a future regime.
European countries, including the U.K., France and Italy, have been at odds with the U.S. over how to adapt century-old tax rules to fit the digital age, amid complaints that the tech giants fail to pay enough tax in the countries in which they have users.
The Organization for Economic Cooperation and Development has brokered talks among member states for the past couple of years over where and how digital companies should be taxed.
Last year, however, France, Italy and the U.K.—frustrated with what they viewed as slow progress in the talks—decided to apply new taxes on the U.S. tech companies operating in their countries. Labeling that tax as “discriminatory,” the U.S. government threatened to impose tariffs on French imports in return.
However, a trade conflict was averted last week, when President Trump and French President Emmanuel Macron agreed to delay both moves while the OECD process advances.
At the resumption of the OECD talks in Paris on Wednesday and Thursday, the member states agreed to continue discussions toward a broad consensus on how to tax multinational corporations—including those that dominate the digital world.
Tax officials have been discussing a so-called “unified approach,” a set of rules proposed by the OECD that would enable countries with a large number of consumers to collect more taxes from companies that operate in their markets.
Modern multinational companies—particularly ones with digital offerings—can sell their products across borders in ways that leave little taxable profit in countries where those products are consumed. Digital companies have typically routed revenues from the countries in which they operate through low-tax countries such as Ireland.
During the OECD talks, member states raised doubts about a U.S. proposal—dubbed a “safe harbor” provision—that would allow companies to opt into the new rules voluntarily and get more certainty about resolving disputes between countries.
U.S. Treasury Secretary Steven Mnuchin has suggested the safe harbor approach would make it easier to get the broad support needed to push the tax changes though the U.S. Congress.
“This proposal was made in the context of trying to reach success at the OECD to produce a package that the United States is politically capable of implementing,” Chip Harter, the lead U.S. negotiator, told an audience of tax experts last week about the safe habor approach. “We are trying to walk a tightrope here and [achieve] the art of the possible.”
The new OECD-brokered rules would affect all large, consumer-facing companies, not just tech firms, and other U.S. multinational companies had begun raising concerns with the Treasury department that they would be adversely affected, prompting the U.S. proposal.
In a joint statement released Friday, tax officials participating in the talks—including those from the U.S.—said that resolution of the safe harbor issue is “crucial to reaching consensus,” a warning that it could derail the process.
Still, there was also some optimism following the meeting.
“There is strong political commitment to work together, which is an important message not necessarily guaranteed a few weeks ago,” said Pascal Saint-Amans, the OECD’s senior tax official.
Mr. Saint-Amans added that there was a “consensus, minus one” on the safe-harbor proposal, an indication that the U.S. is isolated for now.
One downside of the safe harbor provision is that countries might be encouraged to create digital-service taxes as a way of pushing companies into the new system, creating overlapping and conflicting tax regimes and international disputes that governments working through the OECD are seeking to avoid.
It also poses problems for European governments that wish to persuade their unhappy voters that they have brought the technology companies inside their tax net.
“They have political needs,” said Itai Grinberg, a law professor at Georgetown University. “They are not just revenue needs.” An optional system, he added, “sounds really bad” to the electorate.
Governments engaged in the talks hope to find a way to address that shared problem while avoiding a patchwork of unilateral measures.
A failure to find an agreement and the imposition of taxes in Europe on U.S. digital giants could spark a fresh round of trade tensions, including possible new levies by the U.S. on European goods.
Last week, the U.S. renewed its threat to slap trade tariffs on the U.K. and Italy if they proceed with their digital taxation plans. The U.K. has said it will push on with the tax nevertheless, while Italy hasn’t decided whether to move ahead.
Write to Paul Hannon at paul.hannon@wsj.com and Richard Rubin at richard.rubin@wsj.com
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2020-01-31 14:47:00Z
https://www.wsj.com/articles/u-s-plan-for-opt-in-tech-tax-meets-opposition-11580482038
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