Countries remain at loggerheads over crucial details about how to tax Big Tech.
An agreement on how the likes of Amazon and Google should be taxed worldwide has been delayed until the middle of next year, negotiators conceded Monday.
Amid entrenched political differences over how to rewrite tax rules for the digital age, time is ticking down to reach a global agreement and avoid a potential widespread trade war just as the economy teeters toward recession due to the COVID-19 pandemic.
Almost 140 countries — from France to the United States to China — have spent years hammering out digital tax proposals after several national governments pushed ahead on their own to force some of the world's largest tech companies to pay more into national coffers.
An agreement was expected by the end of 2020. But Pascal Saint-Amans, who heads the tax policy center at the Organisation for Economic Co-operation and Development (OECD) that is overseeing the talks, told reporters the new rules would now likely be decided by June 2021.
The French official said that major political differences, particularly on which companies should be included in the new regime and whether the rules would be mandatory, still must be overcome before any deal could be signed.
Paris and Washington, in particular, have butted heads repeatedly on how these digital taxes should be implemented, and several countries and regions — including the European Union — have warned they will push ahead with their own unilateral plans if a global agreement cannot be reached.
“Nothing is agreed until everything is agreed,” Saint-Amans told reporters, as the OECD on Monday released fresh details on the digital tax negotiations.
He added that he was “glass half full” about hopes of reaching an agreement by mid-2021, but said: “It’s not easy. Shall we deliver by mid-2021? I don’t know. It depends on many factors which are both technical and political.”
Several countries including France, the United Kingdom and Italy have domestic digital tax plans on the books, but have agreed to postpone such levies to give time for a global tax deal to be reached.
The EU is also expected to return to potential plans for its own regionwide levy in March 2021, though an official told POLITICO that Brussels would likely give the OECD-led negotiators more time if that was required.
In Washington, where the U.S. presidential election in November has raised uncertainty about how a potentially Joe Biden-led administration would approach the digital tax talks, leading lawmakers in Congress — from both sides of the political aisle — have expressed their opposition to domestic digital tax plans by other countries.
The United States Trade Representative has multiple ongoing investigations into how several of the U.S.'s international trading partners are implementing these levies, but has postponed billions of dollars of tariffs aimed at France and its digital tax rules until a global deal can be reached.
"It’s important that we make clear that the French and others going unilaterally and imposing unfair discriminatory taxes, it’s something that we are not going to tolerate and there will be consequences," C.J. Mahoney, deputy U.S. trade representative, said at a virtual conference last week.
“The best way to prevent escalation is meaningful progress in OECD talks,” Mahoney said.
Two pillars, multiple problems
Finding a political compromise by next year could prove tricky.
As part of its announcement Monday, the OECD published updated proposals for the two areas of its digital tax plans. These documents will be shared with G20 finance ministers when they meet on October 14, and then opened up for public consultation, likely by the end of the year.
The first one, known as Pillar One, aims to determine how to tax companies’ digital activities carried out where the firms do not have a physical presence. The OECD suggests targeting consumer-facing firms with a significant footprint around the globe, notably revenues of at least €750 million, and whose sales in each country reach a specific revenue threshold.
The second, or Pillar Two, introduces measures to ensure a minimum level of corporate taxation worldwide.
Saint-Amans, the OECD official, said that while much of the details of these proposals had been hammered out, tough political decisions still lay ahead, including on Washington’s efforts to make the entire future digital tax agreement optional.
That stance is opposed by almost all other countries, but negotiators acknowledged that any new worldwide regime that did not include U.S. support — particularly when many of the world's largest tech companies are American — would be unworkable.
When asked if Washington had softened its stance on the so-called safe harbor principle, or the idea of making such digital taxes optional, Saint-Amans was straight to the point: “No,” he said.
Other thorny political issues must also still be worked out.
European countries, in particular, are eager to narrow the global regime’s focus solely on digital companies, while others, including the United States and China, want to expand that definition to a broader definition of consumer-facing firms. Negotiators are also stuck on the levels of revenues a company must generate globally before it is included in any prospective new agreement.
Despite these outstanding questions, Saint-Amans said that the COVID-19 pandemic — a crisis that continues to test national economies — had only sharpened minds to reach a global digital tax deal. Many governments, he added, did not want to return to companies offshoring profits to low-tax jurisdictions when the coronavirus crisis eventually subsided.
The OECD official admitted that the current talks, which were supposed to have concluded this year, had been delayed because of the global health crisis, but said there was still a willingness among countries to reach a compromise.
"The reason why we have worked so hard, and made significant progress, is that the fundamentals are there, whether it will take one year or five years,” he said. “We'll do our best efforts to make it happen as early and as quickly as possible. It's complex, but it can be done.”
Author: Mark Scott