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

By Richard Rubin and Paul Hannon Updated Dec. 4, 2019 1:09 pm ET
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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