On February 26, US Treasury Secretary Janet Yellen said at a meeting of G20 finance ministers that Washington would withdraw some of its reservations about global reform of digital tax rules. The move could open the door to multilateral negotiations within the Organization for Economic Cooperation and Development that were stalled after the Trump administration opposed taxing digital giants.
On February 26, US Treasury Secretary Janet Yellen said during a meeting of G20 finance ministers that Washington would withdraw some of its reservations about global reform of digital tax rules. The move could open the door to multilateral negotiations within the Organization for Economic Cooperation and Development that were stalled after the Trump administration opposed taxing digital giants.
In December 2019, the US Treasury Secretary sent a letter to the Organization for Economic Cooperation and Development stating that the United States opposes digital services taxes due to their “discriminatory” effects on US companies.
The beginning of changes in US-EU relations?
The United States called for the introduction of the Safe Harbor Principle, a legal provision that treats taxpayers in a special way.
In this way, US digital companies will avoid unilateral income taxes such as the French Digital Services Tax and benefit from stronger dispute resolution mechanisms.
statement Janet Yellen It represents a shift in international economic policy for the Biden administration that could herald an improvement in transatlantic relations after the last four years of tension.
More transparency and certainty for companies and governments
Italian Finance Minister Daniel FrancoThe G20, who co-chaired the meeting, stated at a press conference that the G20 was aiming for a solution by mid-2021, and added that the new U.S. government position would facilitate a global digital tax deal. It can be reached at the G20 meeting to be held in Saudi Arabia in June this year
But the deal must be approved by Congress, which could be difficult because the Democratic Party has such a small majority.
The work on providing global tax solutions for digital companies has been going on for years. In November 2015, the so-called Action Plan on BEPS was agreed upon by all OECD and G20 countries. (BEPS stands for “base erosion and profit shifting”).
The BEPS 15 point plan is built around three main pillars:
- Improving the consistency of national laws affecting cross-border activities
- Tightening of rules to align taxes with the workplace and create added value
- Increase transparency and certainty for companies and governments.
No more bypassing tax regulations?
Working on digital corporate tax was a major aspect of the BEPS project. Digitalization has allowed companies to organize different stages of production in different countries. Thanks to that, it is also possible to reach a large number of clients around the world.
A digital business can fall into a specific tax jurisdiction without any physical presence. So they choose the most digital friendly jurisdictions, and run a real business outside of it.
The case primarily concerns US companies, so the Donald Trump government has requested that digital companies be excluded from general tax rules.
The deadlock in the talks prompted some governments, most of them in Europe, to impose or consider their burdens on big tech companies to prevent them from paying little or no taxes on their sales.