U.S. concerns about the OECD’s proposal to overhaul how the digital economy is taxed could threaten the effort to get 135 countries to agree to a plan next year, the organization warned.
Treasury Secretary Steven Mnuchin reiterated U.S. support for the OECD’s effort in a letter to the organization’s Secretary General Angel Gurria released Dec. 4. But he also suggested that the first part of the plan, known as Pillar One, should be optional or treated as a safe harbor.
The Organization for Economic Cooperation and Development’s work is driven by concerns that multinationals, in particular big tech companies, aren’t paying enough in taxes or in the right countries. Part of Pillar One would reallocate a portion of corporate profits to the jurisdictions where companies have users or consumers, using formulas and rules that differ from existing standards.
The U.S. has “serious concerns regarding potential mandatory departures from arm’s-length transfer pricing and taxable nexus standards—longstanding pillars of the international tax system upon which U.S. taxpayers rely,” Mnuchin wrote. “Nevertheless, we believe that taxpayer concerns could be addressed and the goals of Pillar 1 could be substantially achieved by making Pillar 1 a safe-harbor regime.”
The safe harbor suggestion hasn’t come up in any of the feedback the OECD has received during public consultations, Gurria said in a response. That in turn raises concerns that the suggestion could make it harder for countries to agree to a plan in time, he wrote. OECD officials previously said countries would meet in January and again in June with the aim of agreeing on the principles of a solution.
Mnuchin said the U.S. would support a global minimum tax and anti-abuse rules—known as the Second Pillar of GloBe—if it aligned with similar U.S. rules.
The U.S. announced Dec. 2 it was considering tariffs on French products like wine and cheese in response to France’s 3% tax on the digital revenue of tech giants like Facebook Inc. and Amazon.com. France, Austria, Italy, and Turkey have pursued unilateral measures to tax tech companies while they wait for the OECD to reach consensus on a plan, and others are considering their own measures.
A global solution could induce countries with unilateral digital tax measures to unwind their taxes, and preempt others from moving forward.
Mnuchin asked countries to drop their unilateral digital taxes—which he said have a discriminatory impact on U.S.-based businesses—to give the OECD time to find agreement.
Gurria asked Mnuchin to meet with the OECD in Paris before Christmas for further discussions.
The Treasury Department didn’t respond to a request for comment.