US pulls out of talks with Europe for global digital tax

The US has suspended talks with European countries about creating an international tax regime for multinational technology companies such as Google and Facebook, warning of retaliatory measures if they press ahead with their own taxes.

In a letter seen by the Financial Times, US Treasury secretary Steven Mnuchin told British, French, Italian and Spanish finance ministers the discussions had reached an “impasse,” and that “the United States remains opposed to digital services taxes and similar unilateral measures”. 

“As we have repeatedly said, if countries choose to collect or adopt such taxes, the United States will respond with appropriate commensurate measures,” he said, adding that the US wanted to resume the talks later this year.

“Attempting to rush such difficult negotiations is a distraction from far more important matters. This is a time when governments around the world should focus their attention on dealing with the economic issues resulting from Covid-19.”

Washington has long been opposed to the digital tax on the basis it discriminates against US companies, while proponents of the tax see these companies as massively benefiting from local markets while making only limited contributions to the public purse.

The UK and its European counterparts, however, will continue to push for a global digital tax, which is being organised under the auspices of the Paris-based Organisation for Economic Cooperation and Development (OECD).

“We have always been clear that our preference is for a global solution to the tax challenges posed by digitalisation. We will continue to work with our international partners to achieve that objective,” said a spokesman for the UK’s HM Treasury.

The UK’s own Digital Services Tax (DST) was enshrined in law at the start of April 2020, with US companies set to start paying in 2021.

When it comes into full effect, the DST will apply to search engines, social media platforms and online marketplaces with global revenues of more than £500m, and where more than £25m of this is derived from UK users. Companies that exceed these thresholds will subject to a 2% tax on their revenues.

At the start of June, US trade representative Robert Lighthizer launched a probe into whether the digital tax measures being adopted or considered by other countries amounted to an unfair trade practice.

Under US law, this would allow Washington to unilaterally place tariffs on imports from “offending” countries.

“Failure to reach agreement [on digital taxation] by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy – we must not allow that to happen,” said Angel Gurría, OECD secretary-general, in October 2019.

Facebook CEO Mark Zuckerberg said in February 2020 he was happy to may more tax in Europe, backing the OECD’s plans to reform multi-national taxation.