The US Removes the Main Obstacle to Reach A Global Agrement on the Google Rate
US Treasury Secretary Janet Yellen withdrew her opposition to the idea of establishing global rules to tax digital giants like Google, Amazon and Facebook at the virtual meeting of finance ministers and central bankers of the top 20 economies of the world (G20) held on Friday. In a move that proves the goodwill of the Biden Administration, the country withdraws the clause known as “safe harbor” (in English) that until now had blocked the negotiations.
This measure, demanded by the government of former US President Donald Trump, would have allowed technology companies to comply with any type of tax agreement voluntarily. However, according to a spokesman for the Treasury Department, Yellen informed her counterparts that she “no longer advocates the application” of it. In this way, the way is paved for the adoption of a proposal on digital taxation under the aegis of the Organization for Economic Cooperation and Development (OECD) in June this year.
Talks among some 137 countries on how to revise international tax rules, with a particular focus on the digital economy and America’s great tech titans, fell apart last year when the Trump administration demanded that any regime be voluntary for these companies, a modality which multiple countries opposed.
Instead of waiting for Washington and the OECD to reach an agreement, several countries chose to unilaterally apply their own taxes on digital services, including Austria, Spain, the United Kingdom, France, India, Italy and Turkey. Even so, these taxes tend to discriminate against non-resident companies since they impose double taxation.
In fact, the Office of the United States Trade Representative (USTR) concluded in mid-January, just before Biden’s inauguration, that the digital services taxes imposed by Spain restrict US trade and they are incompatible with international tax principles thus opening the door to retaliation.
Although the threats are dissipating, there is still some way to go to reach a global agreement on this matter. Beyond the voluntariness clause, the US and Europe have long disagreed on the scope of the new rules. There are also outstanding questions about the amount of benefits to be reallocated to different jurisdictions and how to ensure and enforce tax security.
The OECD, which serves as the forum for these talks, estimates that these tax reforms would increase tax revenue by $ 60-100 billion, or 4% of global corporate tax. Last October, it published an international tax reform project based on two pillars.
Pillar One establishes new rules about where taxes should be paid and an entirely new way of sharing taxing powers between countries. The objective is to ensure that multinational companies with a strong digital or consumer-oriented component pay taxes in the place where they operate in a sustained and meaningful way, even if they do not have a physical presence, as is currently required under current tax regulations.
Pillar Two advocates imposing a global minimum tax that would help countries around the world to solve the rest of the problems related to the erosion of the tax base and the transfer of profits by multinational companies.
The lack of a consensual solution could lead to the proliferation of unilateral taxes on digital services, as has already happened, causing an increase in harmful litigation in commercial and tax matters. If an agreement is not reached, the most pessimistic hypothesis of the OECD does not rule out a global trade war in which world GDP could decline more than 1% a year.
The US Removes the Main Obstacle to Reach A Global Agrement on the Google Rate - /10