Updated: Digital Tax on American Tech Behemoths Takes Center Stage in Davos This Week

Jan 20, 2020
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Thierry Breton, the head of EU’s industrial policy, indicated on Monday the willingness to adopt a unilateral approach vis-à-vis the imposition of a digital tax on U.S. tech giants should the ongoing pertinent discussions at the OECD fail to yield encouraging results.

Mr. Breton said in a news conference:

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  “I do not know any optional voluntary tax... On the big digital players, this is obviously not an option. If it cannot be reached, we would take up the issue at the level of the [EU] Commission.”

As a refresher, an EU attempt to implement a Europe-wide 3 percent digital tax on U.S. internet firms was scuttled in December 2018 by Sweden, Denmark and Ireland largely due to fears of retaliation from the Trump administration. Mr. Breton, however, informed reporters on Monday that a consensus on this matter has now been reached within the EU.

As previously reported, over two dozen countries are currently in varying phases of implementing a digital tax on U.S. tech behemoths such as Apple (NASDAQ:AAPL), Google (NASDAQ:GOOGL), Facebook (NASDAQ:FB) and Amazon(NASDAQ:AMZN). The rationale behind this concerted push stems from a widespread perception that these companies are not paying their fair share of taxes outside the U.S jurisdiction by domiciling assets and trademarks in tax havens such as Ireland.

This simmering dispute was brought into the limelight by the French approving a law in early 2019 that mandated a 3 percent tax on revenues generated by companies that provide internet-based advertising services to French citizens. The tax is applicable on all such companies that earn revenues of at least €750 million globally and €25 million in France.

This step by France, in turn, prompted a probe by the Office of the United States Trade Representative (USTR) regarding the fairness of the imposed tax. The results of that investigation were made public in December 2019. Unsurprisingly, the USTR asserted that the imposition of digital tax on American companies was discriminatory in nature and inconsistent with prevailing tax principles. It also recommended punitive duties of up to 100 percent on $2.4 billion of French signature exports, including cheese, handbags and Champagne.

Digital tax dispute gains spotlight in Davos summit

This week’s gathering of leaders from around the globe at the World Economic Forum (WEF) in Davos, Switzerland, has raised hopes of a breakthrough on the issue of digital taxation. As an illustration, the French economy minister Bruno Le Maire expressed hope on Monday for a swift resolution of his country’s current spat with the U.S. on this subject:

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“We are ready to make steps toward the United States, and we have already proposed a certain number of measures. We hope to reach a resolution by Wednesday.”

Efforts are presently underway at the OECD to carve out new tax rules that limit the propensity of tech giants to engage in tax shielding practices. The forum had proposed in October that governments should tear up a century of taxation precedent by allowing individual countries to tax operations in their jurisdiction even if those companies have no physical presence there.

The proposed rules are part of a bid to prevent corporations from artificially showing profits in low-tax countries instead of the ones where their economic activity takes place. However, the OECD’s suggestions have faced objections from India and 28 other developing countries as they believe that the proposed rules give undue taxation rights to the U.S. and leave them at a disadvantage.

Update:

It seems that the U.S. and France have agreed to a truce. According to the reporting on this issue, France has agreed to postpone its levy on U.S. tech companies. In return, the Trump administration will not impose retaliatory tariffs recommended by the USTR. This truce is expected to last through 2020 as both countries attempt to reach a consensus on the issue of digital taxes at the forum of the OECD. The French President Emmanuel Macron announced the breakthrough on Twitter:

Great discussion with @realDonaldTrump on digital tax. We will work together on a good agreement to avoid tariff escalation.

— Emmanuel Macron (@EmmanuelMacron) January 20, 2020

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