Paul L. Caron
Dean


Wednesday, February 26, 2020

NY Times: Digital Tax Fight Emerges As Global Economic Threat

New York Times, Digital Tax Fight Emerges as Global Economic Threat:

The world’s top economic leaders warned on Saturday that an international tax fight between the United States and Europe poses a new threat to the global economy if a resolution is not reached this year.

After two years of economic fallout from a trade war between the United States and China, finance ministers and other senior officials at the Group of 20 meeting in Riyadh expressed alarm about an impasse over plans by foreign governments to impose new taxes on American technology companies. If a deal proves elusive in the coming months, European countries will begin collecting levies, which would probably set off retaliatory tariffs from the United States. ...

Several European countries, led by France, have been rolling out digital services taxes, which would hit American companies like Amazon, Google and Facebook. Italy, Spain, Austria and the United Kingdom have all announced plans for digital services taxes, which assess a levy based on the online activity that takes place in those countries, regardless of whether the company has a physical presence.

The O.E.C.D. has been trying to head off a proliferation of disparate tax regimes around the world and has been leading negotiations over the last year for an international overhaul that would allow countries to tax certain digital service providers even if they lack physical operations inside their borders.

Negotiators have set an end-of-year deadline to broker a deal that would set international standards for how, and where, online activity may be taxed. Also under discussion is whether to impose a global minimum tax of sorts on multinational corporations to discourage companies from shifting profits to low-tax countries like Ireland and Bermuda to minimize their tax bills.

The United States, along with the tech industry, has been eager to prevent a proliferation of new digital taxes across the world and has pushed for a global tax regime that would govern all O.E.C.D. countries.

But the talks hit a snag late last year when Treasury Secretary Steven Mnuchin told the O.E.C.D. that the United States wanted American companies to essentially have the option to avoid some of the taxes.

Some administration officials privately express concerns that the global minimum tax under discussion could discourage countries from further reducing their corporate tax rates, as the United States did in 2017. Lower rates, these officials argue, make their economies more attractive to global investment and help companies. Other economists say the competition to lower rates have encouraged firms to shift profits, at least on paper, to tax havens.

The economic impact of the digital services taxes on the United States is relatively small, but American companies fear the levies could evolve to hit a broader swath of sectors beyond tech. A recent analysis by the O.E.C.D. found that the international tax changes under consideration would increase global corporate taxes by about $100 billion.

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