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Vulcan Insight | Disappointment over tax levy talks foreshadows national digital taxes

On Wednesday, the G20 Finance Ministers agreed to prolonged talks within the Organisation for Economic Co-operation and Development (OECD) to develop an international digital tax on large digital companies until the summer of 2021 – dashing hopes of an agreement by the end of the year.

The lack of progress from the 140 OECD countries, including European states, the U.S. and China was met with frustration by some. France’s Digital Minister Cedric O, who has long since publicly supported unilateral action, affirmed that the country will begin collecting tax on big digital companies already by the end of the year. Alongside France, the UK and Italy are expected to launch their domestic digital tax plans, having waited for the OECD talks to deliver before proceeding.

EU countries are now pushing for an agreement on how the likes of Amazon, Apple, Google, Facebook and Microsoft should be taxed worldwide to ensure fair tax rules for the digital age. The debate escalated further in the wake of the COVID-19 pandemic as tech giants reported hefty profits amid the economic crisis, while continuing to be taxed less than traditional companies. The U.S., on the other hand, firmly opposes this solution, deeming it an “unfair discriminatory practice”, with the Trump administration favouring a voluntary tax regime.

As a counter-weight to Washington, the European Union has remained steadfast in pushing ahead with introducing an EU-wide digital tax, should the OECD talks fail. European Commission Vice-President Valdis Dombrovskis confirmed that the EU will move ahead with a digital tax proposal in the first half of next year. Political groups in the European Parliament jointly backed the Commission’s plans for a fair EU digital tax regime, aiming to finance Europe’s recovery from the COVID-19 economic crisis, while ensuring the introduction of a new own resource in the Union’s finance.

There are concerns that introducing an EU levy would initiate a trade war with the U.S., resulting in retaliatory tariffs on European products at a time when Europe’s economy is already struggling to cope with the COVID-19 pandemic. As for the future outcome of the negotiations, much will depend on the U.S. presidential election on 3 November, which could constitute a clear shift in the U.S. approach if there is a change in administration.

Compliments of Vulcan Consulting – a member of the EACCNY.