US Secretary of the Treasury Steven Mnuchin withdrew the US from international talks over a digital tax deal after failing to reach an agreement with countries looking to place levies on the revenue of US tech companies, US Trade Representative Robert Lighthizer said on Wednesday.
“We were making no headway and the secretary made the decision that rather than have them go off on their own, he would just say we’re no longer involved in the negotiations,” Lighthizer said at a hearing of the US House of Representative’s Ways and Means Committee.
The decision suspends Washington’s previous approach to find a global deal and could increase the likelihood that tech giants Amazon.com Inc, Alphabet Inc’s Google and Facebook Inc could face a wave of foreign taxes.
“We have a situation where a variety of countries have decided that the easiest way to raise revenue is to tax somebody else’s companies and they happen to be ours,” Lighthizer said.
“The United States will not let that happen,” he said.
The department did not respond to a request for comment.
The Financial Times reported earlier that Mnuchin notified European colleagues of the US’ decision in a letter on Friday last week.
Lighthizer did not rule out a possible settlement that avoids an escalation that could involve US tariffs.
“The answer is that we need an international regime that not only focuses on certain size and certain industries, but where we generally agree as to how we’re going to tax people internationally,” he said. “So I think there is clearly room for a negotiated settlement.”
The Organisation for Economic Co-operation and Development (OECD) is trying to find agreement among almost 140 countries on a global tax overhaul to address how multinationals — particularly tech giants — are taxed in the countries where they have users or consumers.
An international deal would prevent dozens of countries from implementing their own versions of digital taxes that would likely mean companies would pay more.
Several European countries — including Austria, France, Spain, Hungary, Italy, Turkey and the UK — have already announced plans for a digital services tax.
Many others, including the Czech Republic, Slovakia, Latvia, Norway and Slovenia, have discussed implementing one.
India in April expanded a digital tax that has been in place since 2016, making it much broader than those in Europe.
Lighthizer announced a series of new tariffs on French goods last year in response to France’s digital tax. The two countries reached an agreement this year to delay collection of both levies until the end of this year to give the global talks more time.
The US this month announced investigations into Austria, Brazil, the Czech Republic, the EU, India, Indonesia, Italy, Spain, Turkey and the UK that could also lead to more tariffs.
French Minister of Finance Bruno le Maire has said that the US has been the lone holdout in reaching a deal, but still thinks it is possible to have an agreement this year.
“The last state that is blocking an agreement on digital taxation at the OECD is the United States,” said Le Maire said at a meeting of the French Senate’s finance committee last week.
The plan under discussion includes two key pillars. The first portion would give countries the right to tax profits based on sales within their borders. The second would implement a global minimum tax to prevent countries from lowering tax rates to compete for companies.
OECD officials are pushing to stick to an original deadline to reach an agreement this year, despite setbacks amid the COVID-19 pandemic.
Although some officials have acknowledged that it could spill into next year.
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