US drops tariff threat after digital tax deal with European nations
The US has agreed to drop the threat of trade tariffs against five European countries over their digital service taxes on big tech groups such as Amazon and Facebook, in a move designed to make it easier for countries to implement a groundbreaking deal to reform global corporate taxes.
More than 130 countries this month signed up to the biggest corporate tax overhaul for more than a century, orchestrated by the OECD. It included a 15 per cent global minimum effective corporate tax rate, as well as new rules to force the world’s multinationals to declare profits and pay more in the countries where they do business.
The UK, France, Italy, Spain and Austria — which have all introduced taxes designed to target revenue from large US tech firms in recent years — agreed on Thursday to give multinationals affected by the changes a credit that can be used against future tax bills.
The credit system will operate during a transition period until the new global rules come into place by 2023.
The agreement will mean that though digital service taxes can continue until the end of 2023, a company that has paid more tax in 2022 than if the new rules were in place can gain a credit against corporation tax for the excess.
The US had wanted countries to remove their digital taxes as soon as the OECD deal was reached.
With this deal in place, the greatest potential sticking point for the OECD deal is that the US Congress will not ratify the agreement, throwing the proposals into confusion and again raising the possibility of transatlantic trade wars over taxation.
US trade representative Katherine Tai, whose office had threatened trade tariffs against the five countries as well as others who have introduced digital taxes such as India and Turkey, welcomed the development.
“We reached our agreement on DSTs [digital service taxes] in conjunction with the historic OECD global agreement that will help end the race to the bottom over multinational corporate taxation by levelling the corporate tax playing field. In co-ordination with Treasury, we will work together with these governments to ensure implementation of the agreement,” she said.
She warned the US would continue to oppose the implementation of unilateral digital service taxes by other countries.
The lack of agreement with Turkey and India also increases the pressure on these countries to sign up to a similar pact or face US trade measures before 2023.
Rishi Sunak, the UK chancellor, said it had always been Britain’s intention to remove its digital services tax in favour of a global deal. “This agreement means that our digital services tax is protected as we move to 2023, so its revenue can continue to fund vital public services,” he said.