US piles pressure on EU to drop digital tax plan

The US is piling pressure on the EU to shelve its plans for a levy on digital companies, arguing it could clash with Brussels’ pledge to avoid new punitive corporate taxes while negotiations on a landmark global tax deal are being finalised.

The principles of the deal were set out in an agreement by 130 countries at the OECD in Paris last week, after winning approval from the G7 group of leading nations last month.

Senior US and EU officials will this week hold talks ahead of a meeting of G20 finance ministers in Venice on Friday; the fate of the 27-member bloc’s proposed digital levy is expected to feature heavily in the discussions. Janet Yellen, US Treasury secretary, will then meet members of the eurogroup of her opposite numbers in Brussels early next week.

Yellen spoke to European Commission vice-president for digital and competition policy Margrethe Vestager about the tax proposals on Tuesday, according to the commission, which said it was “a good and constructive first exchange”.

Senior US Treasury officials told reporters on Tuesday that the EU’s digital levy plan was probably inconsistent with the OECD and G7 deal, although it would not be possible to confirm whether it was compatible until a final agreement was reached. 

G20 finance ministers will later this week review and discuss the preliminary agreements reached at the OECD and G7, aiming to conclude the deal in time for a summit of G20 leaders in Italy in October, the officials said. 

But the EU’s plan to press on with its own digital levy as early as this month risks increasing transatlantic tensions in the final stretch of the negotiations.

EU officials have stressed the proposal will not mirror the bloc’s 2018 plan for a tax that targeted the world’s largest tech companies but ultimately foundered due to opposition from smaller member states. Instead, Brussels has said it will potentially target hundreds of companies with digital operations — rather than specifically aiming at the US tech giants. 

Valdis Dombrovskis, EU commission executive vice-president for trade, said on Tuesday that work on the levy was “ongoing” and Brussels was confident it would not conflict with the OECD agreement. 

“We are working with our international partners to make sure the rollout of the levy does not interfere with the process at the OECD where an important agreement has been reached. We see this as complementary as it is going to cover a broad company base,” said Dombrovskis. 

Senior US Treasury officials say they are aware the EU is in a difficult political situation because it had pledged to unveil its new digital levy by this month, in conjunction with the issuance of collective debt to finance coronavirus relief measures.

The commission wants to allocate revenue from the digital levy — along with an extension of its emissions trading scheme and its mooted carbon border adjustment mechanism — to help repay the €800bn of borrowings it will amass to implement its recovery fund.

The commission is under heavy pressure to push ahead with the levy from the European parliament, which has long argued that Brussels should develop its own sources of revenue.

Ursula von der Leyen, commission president, insisted last month that the digital levy did not conflict with the international corporate tax proposal and that it would not result in companies being taxed twice for the same revenues. 

However she appeared to hint that the commission was willing to seek a compromise, depending on the outcome of the global tax talks, suggesting that a “broader solution” could emerge in the OECD negotiations.

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