Europe responds cautiously to US digital tax threat

European nations have responded cautiously to the US’s threat to impose $2bn of tariffs on six countries in response to their new digital taxes, which comes ahead of crunch talks on the issue on Friday.

On Wednesday Washington stepped up pressure on other countries to strike a global deal on taxing multinationals by announcing the retaliatory levies, which it suspended for six months to leave time for an international agreement to be reached. The tariffs would target Austria, India, Italy, Spain, Turkey and the UK.

The US had already levied but suspended tariffs on France for the same reason.

Talks between G7 finance ministers in London on Friday and Saturday will determine whether the world’s leading economies can forge a common position on what form a global corporate tax regime would take. This could then shape the continuing negotiations at the OECD in Paris and at G20 meetings this summer and in the autumn.

Paris made it clear on Thursday that it would not withdraw its digital tax until a new global levy on multinationals is agreed and implemented by the US.

“We should withdraw the [national] tax when there are new taxes in place” to avoid a hiatus in tax collection, a French official said. “The tech companies have benefited during the [pandemic] crisis . . . We want to take [their] excess profit and that will be shared between the countries where the company is based and where its operations are.”

The UK has repeatedly insisted that it will not sign up to any deal that does not give it the right to tax digital companies based in other countries.

But a Spanish budget ministry official emphasised common ground with Washington rather than the threat of tariffs. “The fact that the US has suspended the tariff increase reflects its willingness to agree a deal on international taxation,” the ministry official said. 

London — which is hosting the G7 talks — and Paris fear that the Biden administration will not be able to get through Congress any deal that gives other countries a right to tax a slice of US tech giants’ global profits.

That leaves negotiators with a delicate sequencing challenge: countries are unwilling to withdraw their own levies until a new international system is in place.

The proposed regime would both create a new right to tax the largest multinationals’ profits based on where they make their sales and a global minimum effective corporate tax rate of 15 per cent, which would raise significant sums of money in the US.

Katherine Tai, the US trade representative, said on Wednesday that the imposition of the new tariffs and the six-month suspension of the charges would allow more time for international tax talks to continue and give Washington the chance to maintain “the option of imposing tariffs . . . if warranted in the future”.

US ambassadors around the world have been told to garner support for Washington’s plan by stressing President Biden sees it as a “top priority issue”, a person close to the negotiations told the Financial Times. Countries with objections are being told by US representatives that “this is not a tax issue; this is about our [countries’] relationship”.

The person said while a deal appears to be imminent, there is still some tension over which forum any agreement would be officially struck in; the UK is “pushing extremely hard” to tie up the deal at the G7 summit in Cornwall next week.

But other G7 members including the US, Italy and Japan are reluctant to go further than announcing a common position because the G20 is officially in charge of the negotiations and any deal should not be seen as being settled by the big economies alone.

G20 finance ministers and central bankers are due to meet in Venice in early July, and could endorse a global deal then.

Bruno Le Maire, French finance minister, called on the G7 summit to back a global deal and said an agreement was “within reach”. “It’s a matter of fiscal justice and economic efficiency,” he said.

Reporting by Chris Giles in London, Emma Agyemang in Copenhagen, Aime Williams in Washington, Daniel Dombey in Madrid and Victor Mallet in Paris

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