Market leading insight for tax experts
View online issue

US pauses digital services tax discussions

printer Mail

The US has suspended talks with European countries on plans for a global framework for the taxation of digital services, after the discussions reached an ‘impasse’. The US Treasury Secretary Steven Mnuchin has informed EU finance ministers that the US was unable to reach agreement, even on an interim basis, on grounds that US tech companies would be disproportionately affected and in light of current government priorities in dealing with coronavirus. As widely reported, the US opposes unilateral measures to introduce digital services taxes. Secretary Mnuchin’s letter calls for the suspension of pillar one talks (taxing rights, profit allocation and nexus rules) with a view to resuming ‘later this year’. On pillar two discussions, on a global minimum level of tax, the US ‘fully supports bringing those negotiations to a successful conclusion this year’.

Reacting to the news, Ben Jones, head of the London tax group at Eversheds Sutherland, noted the US position was no great surprise, given its long-running concern that digital tax reform ‘disproportionately prejudices American businesses and the growing implementation of unilateral digital tax measures – such as digital services taxes in France and the UK – have added recent fuel to these fears’ with the US government starting to look at unfair trade practice investigations and threatening trade tariffs.

Looking at the wider picture, Jones notes ‘it is possible that stepping back from the wider negotiations is a further weapon in the US arsenal to specifically target these unilateral measures. It is understood that the US government and many potentially impacted US businesses do want an appropriate consensus-based international agreement on digital tax reform, rather than a global plethora of unilateral digital taxes, and this move could be another step to force that agenda. In the meantime, for businesses engaged in the digital economy, the uncertainty about the future tax landscape continues and now seems likely to do so for even longer.’

Writing to the OECD, the US had previously urged other countries ‘to suspend digital services tax initiatives, in order to allow the OECD to successfully reach a multilateral agreement’. OECD Secretary-General, Angel Gurria, has said that all members of the Inclusive Framework should remain engaged in negotiations towards the goal of reaching a global solution by year end, drawing on all the technical work that has been done during the last three years, including throughout the coronavirus crisis. Gurria noted that, in the absence of a multilateral solution, more countries will take unilateral measures and those that have them already may no longer continue to hold them back, potentially triggering tax disputes and heightening trade tensions. He added that a multilateral solution based on the work of the 137 members of the Inclusive Framework is ‘clearly the best way forward’.

Issue: 1493
Categories: News