EU countries urge for “phased approach” to global digital tax talks

The plea comes from Britain, France, Italy and Spain amid ongoing negotiations with US to update cross-border tax rules

Britain, France, Italy and Spain suggested a “phased approach” to global digital taxation talks in a joint letter to the US treasury secretary last week, which they said could open the way for a deal this year. The four countries sent the letter, seen by Reuters, to Secretary Steven Mnuchin after he called for a pause in negotiations to update cross-border tax rules for the first time in a generation.

Talks have been taking place at the Organisation for Economic Cooperation and Development.

In the absence of a global deal, Washington has threatened trade retaliation against European countries that create digital taxes as a way to raise revenue from the local operations of big tech companies such as Alphabet Inc’s Google and Facebook Inc.

“We believe that a phased approach, initially focused on automated digital services, would ...make a political agreement within reach this year,” Mnuchin’s European counterparts said.

“It would also pave the way for possible transitional solutions to be discussed with the United States, notably with respect to existing or upcoming national digital service taxes,” they added.

Fuelling fears at the OECD of a new trade war, Washington has threatened to impose trade tariffs on French Champagne, handbags and other goods after Paris created its own tax on digital giants last year. Critics say the firms profit enormously from local markets while making only limited contributions to public coffers, but Washington says the taxes discriminate against US firms and has opened trade investigations into the charges in several European countries.

The OECD said last month in an update on the talks’ progress that staged process might be necessary, although a year-end deadline for a deal remained possible.

The news comes days after newswire reported that The European Union’s powerful antitrust and Covid-19 bailout enforcer will push ahead with a regional digital services tax even if the US sticks to its efforts to block a global deal. 

In a wide-ranging virtual interview, European Commission Executive Vice President Margrethe Vestager said the EU would “really, really prefer a global consensus” on digital tax, but will push ahead with a regional tax, “if we need to.”

"The new tax is necessary," Vestager argued, "due to the ease with which many large tech companies minimize their European taxes." That makes it “so difficult to defend the many, many, many businesses all over the world who pay their taxes,” she said.

Meanwhile, French Finance Minister Bruno Le Maire told the French Senate this month that the US was the lone holdout on a deal.

“We were a few inches from an agreement,” he told local radio.

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