A brewing fight about which country has the right to tax some of the world’s most profitable companies, including
Even if a Democrat wins the presidency in November, it could be tempting to continue the Trump administration’s policy of using trade sanctions to retaliate against new taxes on U.S. tech companies.
A tit-for-tat trade war is already
All sides have agreed to a tax cease-fire until the end of the year to see if a broader global agreement can be worked out at the Organization for Economic Cooperation and Development.
“Democrats have been as opposed to the digital services taxes as Republicans,” Brian Jenn, a former Treasury official during the Obama and Trump administrations, said. “While very few Democrats are a fan of tariffs, it looks like the tariff approach at least bought a temporary victory in the case of France.”
The U.S., along with more than 130 countries, is currently negotiating at the OECD about a new international tax system that would redefine which countries can tax which corporate profits. A revamped global tax code could apply not just to tech companies, but also to other multinational firms that have customers in countries where they don’t currently record profits.
Worst Case Scenario
Negotiators need to reach an agreement this year before several countries -- including France, Canada and Italy -- plan to move forward with their own taxes on tech giants.
A retaliatory tariff fight with the U.K could begin even sooner. That country’s version of the tax is set to go into effect in April, and U.S. officials have suggested responding with tariffs on car exports.
That could be the worst case scenario for companies such as
“I’m very skeptical that the U.S. will agree to this proposal by the end of this year -- or ever,” said
One of the main challenges of the ongoing talks is to reach a consensus by December that is sufficiently robust to halt the proliferation and imposition of digital services taxes, said
Without enough of a deal to keep the parties at the negotiating table, U.S. companies could face taxes from the approximately dozen countries that have proposed the idea, causing either a Republican or a Democratic administration to fend off levies on income that the U.S. views as within its right to tax.
“There aren’t a lot of other tools in the toolbox to address unilateral taxes in a meaningful way,” Jenn, who has also served as a U.S. delegate to the OECD and is now a partner at law firm McDermott Will & Emery.
A progressive candidate, such as Senator
The negotiations are centered around two main points: establishing a global minimum tax so companies can’t avoid taxes entirely, as well as reallocating taxing rights, meaning some countries with many customers or users of a digital service could tax some of the profits even if the company doesn’t have business operations there.
U.S. Treasury Secretary
Such an agreement could end up hampering the proposals from some Democratic presidential candidates to raise taxes on corporations. If other countries have the right to tax some of Google and Facebook’s profits, that means the U.S. won’t get a cut of that money. That could mean they’d need to find revenue from other sources to fund their policy priorities.
The OECD plan “is structured so that those companies would pay more tax abroad, regardless of U.S. tax policy,” Daniel Bunn, vice president of global projects at the Tax Foundation, said. “The potential U.S. tax take from highly profitable companies based in the U.S. would shrink whether we have a policy of higher taxes on businesses or not.”
It’s still not clear how the U.S. would fare under the global approach. The U.S. would lose the right to tax some profits from highly profitable technology and pharmaceutical companies, but could gain some of that back from foreign companies that have lots of U.S. customers, including French luxury brand conglomerate
Facebook Chief Executive Officer
The OECD digital tax talks have created strange bedfellows. In Congress, the response has been unusually bipartisan with key Republicans and Democrats both supporting the administration’s efforts to come up with a global deal. And the Trump administration is coming to the defense of Amazon and Facebook, two companies the president frequently criticizes.
There’s skepticism however that Congress would actually be able to pass the legislation required to implement any deal reached at the OECD. Lawmakers have been publicly supportive of participating in the negotiations, but they might not ultimately like the outcome, said
“The U.S. is paying lip service to the process. Treasury is convinced that they’re not going to be able to get it through Congress,” Maruca, now a partner at law firm Covington & Burling, said. “When push comes to shove there’s likely to be a lot of gnashing of teeth.”
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