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US, Europe push for progress on digital tax elimination

The United States and five European countries have reached an agreement on how taxes on digital services in those countries will be removed as a broader international agreement progresses, French Finance Minister Bruno Le said on Thursday. Mayor.

The deal is not likely to result in an immediate withdrawal of these taxes as it is still tied to the broader global tax deal that will be finalized and implemented over the next few years. But having a way forward could ease tensions between the United States and France, Italy, the United Kingdom, Austria and Spain.

“This is good news,” Le Maire told reporters. “We have agreed during these two days in Washington on how we will withdraw” these taxes.

Alexandra LaManna, spokeswoman for the US Treasury Department, confirmed that a deal had been reached and said more details should emerge in the coming days.

“This agreement should end tax and trade disputes with our European allies that could hamper economic growth and business investment, and stop unilateral measures to pave the way for the implementation of the 136-country agreement,” she declared.

Most of the US attention in the tax deal reached with 136 countries last week has focused on the global minimum tax which is a priority for Treasury Secretary Janet Yellen and the Biden administration.

But other countries, including France, the UK and Italy, have focused heavily on the other half of the deal, giving countries more scope to levy their taxes on companies that sell to their customers without significant physical presence. It aims in part to raise taxes that companies such as Facebook Inc.

and alphabet Inc.

pay outside the United States

Countries have imposed digital taxes outside of corporate tax in order to tax these businesses. The deal reached last week would expand countries’ taxing powers based on the size of their consumer markets, even if they are not typical profit centers or headquarters. In return, countries would have to forgo their digital taxes.

The United States, through the Trump and Biden administrations, has opposed digital taxes in other countries as being unfair and discriminating against an industry dominated by American companies. He imposed retaliatory tariffs but suspended enforcement as negotiations continued.

U.S. officials have been pushing for the removal of digital taxes as part of a larger deal on which countries tax what companies’ profits. The challenge is knowing when this happens.

The United States called for a speedy removal of taxes, but European countries resisted. The statements from France and the United States on Thursday do not offer complete clarity on what exactly will happen, although Mr. Le Maire reiterated that France will not remove its digital tax until the new tax is in force.

Daniele Franco, the Italian finance minister speaking on behalf of the G-20 presidency, didn’t suggest much movement soon.

“By the end of 2023 or early 2024, the [rules] will be operational, and the agreement is that at that time the national taxes will be removed, ”said Franco. “From the start, it was established that taxes would be removed when a global solution was implemented. We therefore expect national and unilateral taxes to be removed by 2024. “

Resolving tensions between France and the Biden administration will not necessarily create bipartisan goodwill.

“Countries with DSTs should demonstrate their good faith and suspend tax collection while the OECD process is complete,” Representative Kevin Brady (R., TX) said earlier this week. Republican of the House Ways and Means Committee.

Business groups have also insisted on a faster withdrawal.

One of the challenges in the downcast with the United States comes from the system that would replace digital taxes. The new rules would allow countries to apply their corporate taxes to corporations in part based on where customers are located, rather than just where business value is created.

This is a change sought by countries such as the UK, Italy and Spain, which have been frustrated with tech giants making profits on their citizens without paying significant corporate taxes. .

The international agreement calls for a multilateral framework to implement these changes, which would disrupt the network of tax treaties and other rules that have governed the international tax system for decades. The power to tax the largest multinational companies would be replaced by a new formula.

Such a deal would likely have to go through the US Congress, and Republicans argue it would require a treaty and therefore two-thirds approval in the Senate. That would require the support of at least 17 Republicans in the current roster. Other countries are well aware of the potential hurdles the Biden administration would face in securing those votes.

In a letter last week, three senior Senate Republicans said they were concerned about recent suggestions that the administration believed it could implement the changes without changing tax treaties that had been ratified by two-thirds of the Senate. .

“Bypassing this process to bypass our bilateral tax treaties would irreparably erode the exclusive treaty authority the Constitution gives the Senate,” wrote Republican Senators Jim Risch and Mike Crapo of Idaho and Pat Toomey of Pennsylvania.

The Biden administration has been more circumspect about the legislative path forward, hinting that there may be ways to implement the deal without a treaty. No action on this in the United States is expected until next year.

Tying the removal of the digital tax to the passage of the multilateral agreement could help the administration push the plan through Congress by offering Republicans a reason to support the agreement, said Daniel Bunn, vice president of projects. worldwide to the Tax Foundation, a Washington group that generally promotes simpler taxes with lower rates.

But Republicans, he said, will also be concerned about how much of the US tax base they cede as part of the larger deal.

Hans Vijlbrief, the Dutch tax minister, who has no digital tax, said other countries know that changes in the distribution of tax authority are the most politically difficult for states- United and oversee the legislative process.

“It’s not that we don’t trust Capitol Hill, but there are other interests there,” Vijlbrief said in an interview on Wednesday. “I would say the United States is keeping its word. If they promise they will, I consider that they will.

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