PARIS • The threat of a new trans-Atlantic trade war diminished after 137 countries agreed to continue negotiations aimed at creating rules for taxing multinational technology companies that receive foreign revenue.
Officials meeting at the Organisation for Economic Cooperation and Development (OECD) in Paris agreed to convene again in July in Berlin to continue talks seeking to clinch a global accord by the end of this year, according to a statement last Friday.
“It is more urgent than ever that countries address the tax challenges arising from digitalisation of the economy, and the only effective way to do that is to continue advancing towards a consensus-based multilateral solution to overhaul the international tax system,” OECD secretary-general Angel Gurria said in the statement.
Amazon, Facebook and Google have strained existing rules to breaking point because such tech giants are able to book profits in low-tax countries no matter where their customers are located.
Progress on a global accord may cool tensions between European nations, which are concerned that current tax laws do not properly account for a worldwide, data-driven economy, and the United States, which does not want its tech companies to be treated unfairly.
American officials have threatened to impose tariffs on any country that institutes a digital tax, which would likely elicit retaliatory measures from the European Union.
France was the first European country to impose a digital services tax, instituting a 3 per cent levy last year that would hit the revenue of large tech firms, including Google, Apple and Facebook.
The French government agreed last week to delay collecting the tax while work was being done on a global level; if nothing is agreed by December, it will collect the 2020 dues. The US initially threatened tariffs as high as 100 per cent on US$2.4 billion (S$3.3 billion) of French goods in response to the French law.
European Commissioner for Economic Affairs Paolo Gentiloni told Bloomberg TV that, if the OECD effort fails, then the EU will push for a bloc-wide digital tax of its own.
Britain’s Chancellor of the Exchequer Sajid Javid also said that the country plans to go ahead with its own tax in April.
But any truce over digital tax could prove fragile as there is some way to go in talks before negotiators can get into the mechanics of how new tax rules would work.
There is also a lingering dispute over how obligatory the new rules would be, after the US proposed last December that a global digital tax regime should be a “safe harbour” that companies could opt into.
The OECD has warned that introducing the notion of “safe harbour” could make it more difficult for the negotiations to advance, and said members have “expressed concerns” about the approach.
Others, including France, have warned that it would be impossible to agree on tax rules that are effectively optional.
The US needs to provide other countries’ negotiators with details on what it means by safe harbour, said Mr Pascal Saint-Amans, director of the centre for tax policy at the OECD. He was sceptical that the US request could ever be part of an international agreement.
“The initial reaction of members was not enthused, to use an understatement,” he said.
“So today, if you ask me if there is a prospect of consensus, of everyone agreeing implementation will be through a safe-harbour idea, I think the chance of success would be very low, extremely low, close to nil.”