By Sam Schechner and Paul Hannon
Detente is ending in the global fight over tech taxes.
Earlier this year, France agreed to suspend collection of a tax
on digital revenue from large technology companies such as Facebook
Inc., Amazon.com Inc. and Alphabet Inc.'s Google. Meanwhile, the
U.S. delayed the application of tariffs it was putting on French
goods in retaliation for the tax.
But now France has resumed collecting what is known as its
digital-services tax, a French official said. Other countries,
including Italy and the U.K., whose similar taxes went into effect
this year, are also set to begin collection in coming months.
The U.S., meanwhile, is set on Jan. 6 to impose tariffs on $1.3
billion of French imports, including cosmetics and handbags.
Washington also has pending investigations that could lead to
similar tariffs on 10 other countries, including the U.K., Italy,
India and Spain.
At issue in the dispute is how to tax an increasingly digital
economy. For decades, tax treaties have generally allocated
corporate profit based on where value is created. But modern
multinationals -- particularly ones with digital offerings -- can
sell their products across borders in ways that leave little
taxable profit in a country where those products are consumed.
France and some other big European countries say tech companies
should pay more taxes in the countries where their users and
clients are located, something that could boost their tax revenues.
But in long-running multilateral talks on how to update the tax
system, the U.S. has opposed any solution that is too targeted at
tech companies -- slowing progress.
"These taxes are a reaction to dissatisfaction with how long it
has taken to get a global multilateral solution," said Manal
Corwin, who served as deputy assistant secretary for international
affairs at the U.S. Treasury Department in the Obama
administration, and now works at accounting firm KPMG. "You may
need some trade battles back and forth before there's a strong
incentive to say, 'OK, enough.' "
The potential for a trade spat over digital taxes will provide
an early challenge for U.S. President-elect Joe Biden, who takes
office two weeks after the U.S. tariffs on France go into
effect.
Democrats have so far largely supported the Trump
administration's approach to these talks, but the incoming
administration has declined to offer any positions on the topic or
comment for this article.
A slide into tax-linked trade disputes could reduce global
economic output by 1%, the Organization for Economic Cooperation
and Development, a club of 37 advanced economies, warned in
October.
Big U.S. tech companies have opposed the patchwork of one-time
national taxes on digital services, which they contend are unfairly
targeted against U.S.-headquartered businesses. Spokesmen for
Amazon and Facebook said the companies instead support the
multilateral talks -- organized by the OECD -- on a coordinated
global reallocation of tax revenue. A spokesman for Google didn't
respond to a request for comment, but the company has previously
expressed the same position.
Some companies subject to digital-services taxes have started
passing along those costs. Amazon charges merchants fees to cover
the taxes in France, the U.K. and Italy, a spokesman said.
The OECD talks on how to reallocate tax revenue from digital
companies have run into trouble. Over the summer, U.S. Treasury
Secretary Steven Mnuchin declared the talks to be at an impasse. In
October, the OECD said that while it had made progress on technical
details, it wouldn't meet the year-end goal of reaching an overall
agreement -- pushing back its expectations to mid-2021.
The OECD says its proposal for how to reallocate taxable income
among countries should shift roughly $100 billion of tax revenue a
year. But the potential net cost to U.S. tax revenue is likely much
smaller, perhaps as little as $5 billion, according to a person
involved in the negotiations.
"International cooperation on tax policy will be crucial to
confront and defeat the virus, and also to build back better," OECD
Secretary-General Angel Gurría said during a mid-December speech
that referred to the coronavirus pandemic.
As talks have dragged on, some countries including India and
Austria have begun imposing their own targeted taxes on digital
revenue from big companies. Spain says its digital-services tax
will go into effect on Jan. 16, with payments due quarterly.
Austria says it expects its version of the tax to bring in 40
million euros, equivalent to $49 million, for 2020. France, for its
part, says its tax -- a 3% levy on some types of digital revenue
from big companies -- brought in EUR400 million in 2019. The French
tax is expected to reap more than that in 2020, the French official
said.
"We must make sure they are paying their fair share of taxes,"
French President Emmanuel Macron said of tech companies during an
autumn event at the OECD.
An international deal is still possible in 2021. Discussions at
the OECD are continuing, with public comments on its proposals
submitted this month.
A less-controversial proposal to create a global minimum tax
level for corporations faces fewer obstacles. But it isn't likely
alone to satisfy France and other countries, which have said they
would withdraw their unilateral taxes only if a satisfactory
agreement can be reached on digital taxation.
As more taxes go on the books, an international deal becomes
more complicated, KPMG's Ms. Corwin said: "It's just much harder to
pull it back together when you've got countries having gone off and
done their own things."
--Richard Rubin, Rajesh Roy and Eric Sylvers contributed to this
article.
Write to Sam Schechner at sam.schechner@wsj.com and Paul Hannon
at paul.hannon@wsj.com
(END) Dow Jones Newswires
December 30, 2020 08:14 ET (13:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Alphabet (NASDAQ:GOOG)
Historical Stock Chart
From Jun 2024 to Jul 2024
Alphabet (NASDAQ:GOOG)
Historical Stock Chart
From Jul 2023 to Jul 2024