Via Financial Times

Brussels’ top economic official has stepped up a transatlantic dispute over a global digital tax, saying the EU would be ready to revive its own plans for a region-wide levy if international negotiations fail.

The vow from Paolo Gentiloni, the EU’s new economy commissioner, came after fears grew that an OECD effort to reach a deal on minimum taxes for global tech companies was teetering on the edge of collapse amid US resistance.

In a letter to the OECD this week, Steven Mnuchin, the US Treasury secretary, reversed Washington’s previous stance in the international talks by resisting a proposed shake-up in the rights that countries would have to tax large multinationals. 

Mr Gentiloni said he did not want to prejudge the outcome of the discussions but that if there was a “negative outcome” at the OECD level, the EU was ready to bring forward plans for a pan-European regime. 

“I think everyone should be assured on the fact that the EU will deliver on its own if there is not an OECD decision,” he told the FT on the sidelines of meetings of finance ministers and officials in Brussels on Thursday. “Our commitment is very clear.”

Following months of talks, the Paris-based OECD, the organisation in charge of the international tax discussions, proposed a new system of international corporate taxation in October in a bid to stop companies transferring profits to low-tax jurisdictions and tax havens.

It would give countries some rights to tax the largest multinationals based on a small proportion of their global profits from sales, not just on incomes declared in their own jurisdictions.

READ ALSO  Eurozone business activity falls as virus restrictions choke off recovery

Instead of the support it gave the OECD process earlier this year, Mr Mnuchin said the US now had “serious concerns” about the plans.

Mr Mnuchin proposed a “safe harbour” regime that would make the new global proposals optional for companies, in effect ending prospects for a global agreement.

Instead, countries would be likely to go it alone and follow France, Italy, the UK, Austria and Turkey in proposing their own digital taxes on a unilateral basis, regardless of profitability.

The European countries proposing to introduce such taxes have done so in a bid to speed international negotiations and put pressure on all 135 countries negotiating in Paris to reach outline agreement in January.

If the talks fail, a move by the EU would exacerbate tensions between Europe and the US after Donald Trump threatened to impose tariffs on French products including cheese and sparkling wine because of French proposals for a 3 per cent digital tax.

Mr Gentiloni’s pledge means that the European Commission is ready to revive work on plans for an EU digital services tax, which foundered in 2018 because of opposition from countries including Denmark, Sweden and Ireland. 

Brussels had pushed for a tax targeting tech giants’ revenues, arguing that their business models, tax planning structures, and lack of physical presence in Europe had allowed them to largely escape taxation within the EU despite making large profits there.

Persistent disagreements over the plans — which were championed by Emmanuel Macron — led to Europe prioritising work on a global accord at the OECD. Individual EU countries went ahead with their own national versions of the tax plan in the meantime.

READ ALSO  Walmart's Redesigned Airport-Style Stores Will Track Everyone

All countries still say they are committed to the OECD process and many close to the process hope the US will quietly drop its latest idea once the effects of the proposals are clearer.

OECD officials expect the US to win from any agreement because it will gain more from new taxing rights over European and other multinationals than it loses from tech giants.

In an emergency move, Angel Gurría, OECD secretary-general, invited the US to Paris to seek to resolve the dispute before Christmas. He said the US proposals threatened to “impact the ability of the 135 countries that are now participating in this process, to move forward within the tight deadlines we established”. 

The proposals would not only apply to tech giants such as Facebook, Apple, Amazon, Netflix and Google, but also other multinationals that make significant sums from intangible assets such as brands.

“If there is a negative outcome in the OECD level, we have the task to work for a European solution”, Mr Gentiloni said. “The OECD was expected to give a more precise proposal in January.”