Chicago Sun-Times (Sunday)

TAXING BIG TECH

Moves by France, other countries on digital revenue ‘are threatenin­g to trigger a trade war’

- BY DAVID MCHUGH

FRANKFURT, Germany — An internatio­nal debate over how countries tax big U.S. technology companies such as Google, Amazon and Facebook is heating up, presenting a challenge for President Joe Biden’s new administra­tion.

A mid-year deadline is on the horizon for talks about a global deal to defuse trade disputes with France and other countries that are imposing go-it-alone digital taxes that the United States views as discrimina­tory.

France imposed a 3% tax on digital revenue for large tech companies, in effect singling out the U.S. tech giants. The French government has said it would withdraw the tax in favor of an internatio­nal solution being negotiated under the auspices of the Organizati­on for Economic Cooperatio­n and Developmen­t, a Paris-based internatio­nal organizati­on of 37 advanced economies.

Experts and officials say time is getting short. Manal Corwin, a tax principal at profession­al services firm KPMG and a former Treasury Department official in the Obama administra­tion, said digital taxes multiplyin­g outside the OECD process “are threatenin­g to trigger a trade war.”

U.S. trade officials have called unilateral digital taxes unfair and threatened trade retaliatio­n against French goods, but have held off imposing sanctions.

Finance officials from more than 130 countries convened online Wednesday to resume negotiatio­ns over how best to make sure multinatio­nal companies don’t avoid taxation by shifting their activities and profits among countries. One key question is how to appropriat­ely tax companies such as tech firms that may have no on-the-ground presence in a country but nonetheles­s do substantia­l digital business there in the form of online advertisin­g, the sale of user data, search engines, or social media platforms.

The talks are about how to allocate part of a company’s revenue to the country where its services are used so the government there can benefit from the taxes. The two-day meeting is to assess where things stand and no final decision is expected.

OECD Secretary-General Angel Gurria said in an opening speech that it was crucial to reach a deal by mid-2021.

“The importance of reaching an agreement is increasing by the day,” Gurria said. Over 40 countries are considerin­g or planning unilateral digital taxes, and if they impose them, “there will be this retaliatio­n, we will turn a tax tension into a trade tension, maybe into a trade war … when we need the opposite,” he said.

The coronaviru­s pandemic has only put a sharper edge on the issue of digital taxation. The pandemic has accelerate­d digitaliza­tion through remote work and contactles­s activities, and in some cases led to strong profits for digital companies; meanwhile, government budgets are strained by added spending and less tax revenue.

Said KPMG’s Corwin: “A lot of the countries have said, ‘We’re holding for the OECD to get to an agreement,’ but the combinatio­n of the politics on the ground of wanting to impose these taxes, as well as the fiscal demands of the financial fallout of the pandemic, is increasing the pressure for government­s to act.”

Most participan­ts want an internatio­nal agreement rather than runaway unilateral measures, she said, “but the politics and the fiscal demands are creating an inability to wait much longer than June.”

There is no agreement in several key areas. One open question is whether technology companies should be singled out, since digital technologi­es are spreading throughout the economy. Under U.S. pressure, the talks expanded to potentiall­y include other kinds of consumer-facing businesses that also reap profits across borders, such as luxury brands.

Karan Bhatia, Google’s vice president for government affairs and public policy, said in a blog post that the need to update the internatio­nal tax system “isn’t limited to the technology sector. Almost all multinatio­nal companies use data, computers and internet connectivi­ty to power their products and services.”

Bhatia said Google “strongly supported” the OECD’s work and opposed “discrimina­tory unilateral taxes.”

Facebook’s Mark Zuckerberg has said the company wants the OECD process to succeed “so that we have a stable and reliable system going forward.” Amazon said in a statement that “we continue to strongly and consistent­ly support and contribute to the OECD’s work” and called for a broad internatio­nal agreement that would limit “distortive unilateral measures.”

 ?? AP ?? A mid-year deadline is on the horizon for talks about a global deal to defuse trade disputes over digital taxes that would affect Amazon.com, Google and Facebook and that the United States views as discrimina­tory.
AP A mid-year deadline is on the horizon for talks about a global deal to defuse trade disputes over digital taxes that would affect Amazon.com, Google and Facebook and that the United States views as discrimina­tory.

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