US wields $2bn tariff threat against 6 nations over digital taxes

The US has threatened to slap tariffs on $2bn worth of goods from the UK and five other countries as they argue about how to tax technology companies, a move that risks reigniting transatlantic trade wars unless parties resolve thorny talks over a broader international tax agreement.

The office of the US trade representative said it was imposing but immediately suspending for six months the tariffs on Austria, India, Italy, Spain, Turkey and the UK as it wrapped up a series of investigations over the way the countries tax US tech giants. 

The announcement comes as wealthy countries are locked in intense negotiations to hammer out an update to the international tax regime. The Biden administration has proposed giving advanced economies powers to raise corporate tax from US tech companies and other large multinationals, while instituting a global minimum corporate tax.

The advanced economies of the G7 are close to reaching agreement after progress in recent weeks, with finance ministers due to meet in London to discuss a possible deal on Friday. A G7 pact would be a stepping stone towards a deal in the formal negotiations taking place at the OECD in Paris and directed by the wider G20 countries.

Governments introducing “digital services” levies have argued that tech companies pay too little tax on the profits they make in many countries, partly because they record them in low-tax jurisdictions such as Ireland. Washington has said the taxes are unfair because they disproportionately affect US companies. 

Katherine Tai, the US trade representative, said the six-month suspension of the tariffs would allow more time for international tax talks to continue, but it would allow Washington to maintain “the option of imposing tariffs . . . if warranted in the future”.

The Biden administration in April offered a fresh proposal to overhaul the international tax system in an attempt to break the impasse in the tax talks being held at the OECD. 

The US proposal would apply taxes to the global profits of the very largest companies, including big US technology groups, regardless of their physical presence in a given country. It also sought a minimum global corporate tax rate of 21 per cent, although the US has recently said it would accept a 15 per cent minimum. 

A Spanish budget ministry official emphasised common ground with Washington rather than the threat of tariffs. Madrid has been saying for months that it wants and is working towards an international agreement on digital tax by the summer.

“The fact that the US has suspended the tariff increase reflects its willingness to agree a deal on international taxation,” the ministry official said. “We celebrate the fact that the Biden administration is committed to tax co-operation and that it has aligned itself with positions that the Spanish government has been defending for years, such as establishing a minimum rate in corporate tax.”

The UK would be worst-hit by the new tariffs if an agreement to dissolve them is not reached, with British exports to the US worth $887m a year saddled with levies of 25 per cent. The goods to be targeted include perfumes, make-up, clothes, jewellery and video games.

The US has already suspended tariffs of 25 per cent on $1.3bn worth of French handbags and cosmetics, having at first threatened to hit champagne and cheeses with import tariffs of 100 per cent.

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