The U.S. is engaged in “vigorous diplomacy” in an attempt to stop countries from adopting unilateral tax measures that target digital companies, a top U.S. Treasury official said.
“Our greatest concern at the moment are the proposed digital service taxes,” said Lafayette “Chip” Harter, deputy assistant secretary of international tax affairs at the Treasury Department. Harter referenced France and the U.K.'s proposed digital services taxes at a May 10 American Bar Association tax section meeting in Washington.
“We’ve been arguing very strongly that any such taxes should be deferred until after 2020 to give the OECD a chance to agree on an alternative,” he said. The Organization for Economic Cooperation and Development is working on building global consensus.
Several countries, including Italy, India, Poland, and the Czech Republic have put forward their own proposals to tax the revenue of tech companies such as Facebook Inc. and Alphabet Inc.'s Google, after efforts to pass a European Union-wide digital tax stalled this year.
But U.S. officials are publicly denouncing such political measures, and say each unilateral step threatens multilateral negotiations that seek a global fix to the mismatch between where companies earn profits and where they are taxed.
France has proposed a 3% tax on revenue from digital advertising, user data sales, and third-party platforms from companies with at least 750 million euros ($843 million) in worldwide revenue and 25 million euros in domestic revenue. The U.K. plans to include its 2% digital services tax as part of its Finance Bill 2019, which would become effective in January 2020.
“The U.S. is clear on its opposition to digital services tax and we’ll do our best to make that view known around the world,” Brian Jenn, deputy international tax counsel at the Treasury Department, said at the conference.
“These measures are political measures and could have political consequences and that could affect the conversation at the OECD,” he said.
Under the current international tax system, digital businesses are able to sell goods and services and gain substantial market share in a foreign country without any physical footprint, which limits that country’s ability to tax the company’s earnings.
“It’s a political effort and a technical effort. Countries will either be gaining or losing jurisdiction over taxing revenues,” Harter said.
“If countries feel free to adopt unilateral measures based on narrow concepts of self-interest which are regimes that tax other people’s companies, that could really end up in a very chaotic situation and put considerable burdens on international trade and investment,” he said.