Treasury Secretary Raises Concerns Over Global Tax Talks
Treasury
Secretary Raises Concerns Over Global Tax Talks
In letter, Mnuchin warns of erosion of longstanding
international tax rules
WASHINGTON—The U.S. has “serious concerns” with proposals being
discussed in the global rewrite of corporate tax rules, Treasury Secretary
Steven Mnuchin said.
In a letter to
the Organization for Economic Cooperation and Development, Mr. Mnuchin cited
concerns from U.S. businesses about a potential emerging agreement. He warned
that changing the mandatory rules for when countries have the right to tax
companies could affect “longstanding pillars of the international tax system
upon which U.S. taxpayers rely.”
In the letter, dated Dec. 3, Mr. Mnuchin wrote that the U.S.
continues to support global talks and again urged countries to suspend targeted
taxes on digital services.
The U.S. has been at the table throughout the process. Mr.
Mnuchin’s letter doesn’t pull the U.S. out, but it does raise a red flag about
an approach that has been under discussion for months. The global talks are
already a complex political balancing act as countries wrestle for the rights
to tax multinational businesses, particularly tech companies that can book
relatively low profits in places where they have many customers
or users.
On Monday, the Trump administration proposed tariffs—which
would hit products ranging from cheese and wine to handbags and porcelain—in
response to France’s digital-services tax,
which Mr. Trump says targets U.S. tech companies.
Mr. Mnuchin noted in the letter that any new agreement will
likely need enough support to get through Congress, either as legislation or amendments
to tax treaties. He suggested that the rules for which countries get taxing
rights should be part of a “safe-harbor regime” as opposed to being mandatory
and said that approach could address business concerns.
The letter provided no detail about
what that such a regime might look like, but making such rules optional for
companies could complicate the already-delicate talks, which hadn’t presumed
any sort of choice for businesses. The U.S. does support minimum taxes like the
one Congress enacted for U.S.-based companies in 2017.
A spokeswoman for the French Finance Minister Bruno Le Maire
declined to comment on the letter. Earlier Wednesday Mr. Le Maire told
reporters France was working to find an agreement at the OECD to come up with a
fair and efficient international digital tax. He added that he expected to speak
with Mr. Mnuchin on Wednesday afternoon.
Mr. Mnuchin’s letter comes as governments from around the world
have been seeking to negotiate a new way of taxing businesses in the digital
age. In October, finance ministers from the Group of 20 welcomed a proposal
that would see a wide range of consumer-facing companies pay more taxes in
countries where they have customers, but report little profit.
The G-20 urged that the process move forward, calling for an
agreement on the outlines by January. Officials have been aiming for a full
political consensus by June 2020, followed by changes to individual countries’
laws and treaties.
Mr. Mnuchin’s concerns raise questions about whether that
timetable can be delivered, and whether an international agreement is still
possible.
France had pledged to repeal its digital services tax—introduced
in July—once an agreement is reached at the OECD. A number of other
countries—including Italy and the U.K.—have announced plans to impose a tax on
digital services, saying their proposals help create a sense of urgency,
without which a global deal wouldn’t be possible.
The existing approach to taxing businesses that offer their
products in a number of different countries dates back to the time when they
had to have a significant physical presence to do so, such as a factory in the
case of automobile makers.
Corporate profits are now taxed where value is created, often
where a company has its headquarters or in a low-tax jurisdiction where it
houses intellectual property. But in the digital age, companies can reach
consumers without that physical presence. That hurts high-tax countries such as
France without homegrown tech giants, but whose residents are customers of
companies such as Facebook Inc., Alphabet Inc. and Apple Inc.
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