US Suddenly Suspends Talks With Europe On Digital Tax, Threatens Tariffs

US Suddenly Suspends Talks With Europe On Digital Tax, Threatens Tariffs

by Tyler Durden Wed, 06/17/2020 - 15:55

The U.S. suspended talks with European countries for a new global tax framework for tech companies such as Alphabet Inc.'s Google and Facebook Inc, reported Financial Times.

U.S. Treasury Secretary Steven Mnuchin wrote a letter to four European finance ministers warning them that discussions had reached an "impasse." He said the U.S. couldn't agree on interim basis changes to the global taxation law that would affect big tech companies.

Mnuchin warned if European nations attempted to implement their own digital tax against U.S. tech companies -- it would pave the way for fresh tariffs.

France, Spain, the U.K., and Italy have been some of the countries eager to tax Apple, Facebook, Google, and other U.S. tech firms, alleging these companies profit from the European market while making minimal contributions.

"Attempting to rush such difficult negotiations is a distraction from far more important matters," Mnuchin wrote in the letter, dated June 12 (seen by Financial Times). "This is a time when governments around the world should focus their attention on dealing with the economic issues resulting from Covid-19."

The letter was sent to Rishi Sunak, the U.K. chancellor of the exchequer, French economy minister Bruno Le Maire, and the finance ministers of Italy and Spain, which demanded talks on the global tax framework be suspended.

"The United States remains opposed to digital services taxes and similar unilateral measures," Mnuchin wrote. "As we have repeatedly said, if countries choose to collect or adopt such taxes, the United States will respond with appropriate commensurate measures."

Mnuchin made it clear that he wants to resume talks in the back half of the year. European countries are expected to respond to Mnuchin's letter.

"The OECD had proposed a compromise with two pillars. The first suggested countries would be allowed for the first time to have some rights to tax profits made on the basis of sales in their jurisdictions. This would not just apply to U.S. tech giants, but would also give the U.S., for example, limited taxing rights over European luxury goods companies.

The second was that there would be a global minimum corporate tax rate to stop countries lowering corporate tax rates in an attempt to shift company headquarters to their jurisdictions.

Mr. Mnuchin insisted that discussions on the second pillar remained on track and that the parties were "much closer to an agreement." He said the U.S. hoped to bring these talks on a global minimum tax to a conclusion this year," Financial Times reported.

With talks now suspended -- progress stalled, and if European countries start rolling out individual taxes on U.S. tech firms, there could be a bilateral conflict between Europe and the U.S. -- erupting into a tit-for-tat tariff war this summer. This could be enough to inflict damage on a global economy that is already reeling from a virus-induced economic crash.


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