Digital tax fight seen as global economic threat

RIYADH, SAUDI ARABIA » The world’s top economic leaders warned Saturday that an international tax fight between the United States and Europe poses a new threat to the global economy if a resolution is not reached this year.

Finance ministers and other senior officials at the Group of 20 meeting in Riyadh expressed alarm about an impasse over plans by foreign governments to impose new taxes on American technology companies. If a deal proves elusive in the coming months, European countries will begin collecting levies, which probably would set off retaliatory tariffs from the United States.

“The trade tensions of today would look like they are not so serious compared to the consequences of something like this,” Angel Gurría, secretary-general of the Organization for Economic Cooperation and Development, said in an interview on the sidelines of the G-20 on Saturday.

Several European countries, led by France, have been rolling out digital services taxes, which would hit American companies like Amazon, Google and Facebook. Italy, Spain, Austria and the United Kingdom all have announced plans for digital services taxes, which assess a levy based on the online activity that takes place in those countries.

The OECD has been leading negotiations over the last year for an international overhaul that would allow countries to tax certain digital service providers even if they lack physical operations inside their borders.

Negotiators have set an end-of-year deadline to broker a deal that would set international standards for how, and where, online activity may be taxed.

Also under discussion is whether to impose a global minimum tax of sorts on multinational corporations to discourage companies from shifting profits to low-tax countries like Ireland and Bermuda to minimize their tax bills.

But the talks hit a snag late last year when Treasury Secretary Steven Mnuchin told the OECD that the United States wanted American companies to essentially have the option to avoid some of the taxes.

Finance ministers from other nations have made clear that a large swath of countries will not agree to any deal that allows some large American companies to effectively pick their preferred tax system to minimize their global liability.