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Officials of OECD have warned that failing to strike a deal would lead to a proliferation of taxes and tariffs that could reduce the size of the global economy by as much as 1% — more than $1 trillion at current levels — per year
International negotiators said Monday that they would not reach agreement this year on how and where to tax technology giants like Google and Facebook, as talks remain hindered by the pandemic and an ongoing dispute between the United States and other wealthy nations.
Pressure is mounting on negotiators, as an increasing number of countries look to patch budget holes by imposing new taxes on American tech corporations, inviting retaliatory threats from the Trump administration. Officials at the Organization for Economic Cooperation and Development, which has organized the negotiations, warned in a morning news conference from Paris that failing to strike a deal would lead to a proliferation of taxes and tariffs that could reduce the size of the global economy by as much as 1% — more than $1 trillion at current levels — per year.
“The alternative to finding an agreement would be a trade war,” Angel Gurria, the organization’s secretary-general, told reporters. As nations try to rebuild their economies from the coronavirus pandemic, he said, “it would inflict a very serious setback.”
Gurria and Pascal Saint-Amans, who directs the OECD’s Center for Tax Policy and Administration, cited the virus and “political issues” as having derailed the goal of reaching agreement by the end of this year.
The politics heavily feature the Trump administration, which said in June that it was pulling out of negotiations, amid disputes with other wealthy countries over the treatment of American companies that could face higher global tax bills under a new international agreement. Steven Mnuchin, the Treasury secretary, has pushed for a provision in any agreement that would effectively allow American corporations to choose whether or not to be governed by the global tax system set up by an agreement, a demand that other leading countries oppose.
But the OECD officials said Monday that the administration had remained a part of the talks and had not pulled American experts out of the negotiations.
“The United States has been working with us and has added its technical competence and expertise to the work the OECD has been doing,” Gurria said. “They have been participating actively and at high levels.”
The talks cover a high-stakes, and highly lucrative, issue that has emerged around the world in recent years: the question of how countries should tax the sale of goods and services to their citizens over the internet, by corporations that have little or no physical presence inside their national borders.
That question has taken on new urgency as countries look for new sources of tax revenues to shore up their government budgets as they spend heavily to contain the pandemic and help their economies emerge from it as quickly as possible.
Many governments, in Europe and elsewhere, have increasingly looked to implement so-called digital service taxes, which apply largely to American tech giants like eBay and Amazon. Italy, Spain, Austria and Britain have all announced plans to levy digital services taxes, following the lead of France.
In response, the United States has threatened to impose tariffs on imports from countries that impose the taxes. The administration said in July that it would move next year to tax $1.3 billion in products like cosmetics and handbags from France, in retaliation for its digital service tax. Saint-Amans said Monday that he had seen no indication that the United States or France would hold off on reescalating the dispute next year.
France, which has been leading the European campaign to tax digital giants, will press ahead with a plan to impose a tax on Apple, Facebook and other internet giants this year despite the delay announced by the OECD, a finance ministry spokesman said Monday. The 3% tax on total annual revenue from services to French users was approved this year by the French parliament and “will apply,” the spokesman said, adding that Finance Minister Bruno Le Maire would urge countries at a G-20 meeting on Wednesday to strike a deal on digital and minimum taxation quickly.
A key goal of the talks has been to deescalate tensions by reaching international agreement on how and where digital activity may be taxed. In recent months, including what officials described as 70 days of virtual conference meetings online, negotiators have sought to flesh out the details of what such an agreement might look like in practice — while essentially ignoring the high-level political disputes that are keeping any agreement from coming together.
Typically in international tax negotiations, parties strike a political agreement first and then fill in the details, said Manal Corwin, a former Treasury Department official in the Obama administration who now heads the Washington national tax practice at KPMG.
“Here, it’s a bit reversed,” she said. “They’re trying to make as much progress as possible on the technical details, and then try to make a political agreement.”
One of the technical documents released Monday would guide where multinational companies pay taxes, including a new push that would effectively make some tech companies pay taxes where their customers are, even if they have no operations in those countries. Another would establish a new global corporate minimum tax.
Those efforts, combined with changes in international taxation that were included in President Donald Trump’s signature 2017 tax law, could raise up to $100 billion a year in new tax revenue from multinational companies, the OECD estimates. Another $100 billion in corporate taxes could shift between countries. Countries of all income levels would benefit from additional tax revenues, the OECD estimated on Monday, though some low-tax countries like Ireland could lose out
The American business community is divided over the talks. Some multinational companies, including many technology companies, are eager for an agreement that would head off the complications of complying with different digital services taxes in a wide range of countries. Other companies fear the agreement would raise their taxes unexpectedly and were a driving force in pushing the administration to announce its disengagement from negotiations in the summer.
SOURCE: MONEY CONTROL