Digital tax law stand-off between US and EU set to escalate

The US government has consistently rebuffed efforts by any country to tax the big tech companies like Amazon, Google, Facebook and Alphabet. Governments in France, Italy and the United Kingdom have all passed digital tax rules that aim to collect hundreds of millions in revenue from tech giants.

But the US opted out of fraught international tax negotiations with European countries in June 2020.The EU termed it as a provocative move.“I very much regret the U.S. move to put the brakes on international talks on taxation of the digital economy,” said Paolo Gentiloni, the European economic commissioner. “If a global solution isn’t reachable this year, we will come forward with a new proposal at E.U. level,” he added.

The new Treasury Secretary Janet Yellen’s ascension to the post has been hailed by diplomats in Europe and elsewhere who are hopeful of a more conciliatory tone.

France Digital Service Tax Reforms

France is of the opinion that by 2021 there should be a uniform digital tax adopted across the EU.

But there are constitutional and regulatory impediments to anything happening quickly as the Organization for Economic Cooperation and Development (OECD) wants. The economic international body wants a quick solution by this summer. But the lawmakers have to approve of any new legislation that involves changing the US tax code. And under US law, opening the tax code opens up all US tax law for amendment. Incorporating a new global tax agreement into US law will be arduous as it is not possible to limit its scope and pass a small bill.

Another hindrance is no lawmaker is ready to raise taxes that will mean the constituents will have to finally pay for it. And including an international law into the country’s code is fraught with pitfalls.

Additionally, the big corporates will not be happy too, and will lobby against it as a new digital sales tax law means all of them having to shell out money to operate in different countries. Considering how much effort is made by the big techs to float entities in liberal tax countries to avoid paying taxes, this law is not going to pass soon.

The European Commission has said it would revive plans for a bloc-wide tax if the U.S. withdrawal from OECD talks killed off the prospect of a global reform.

“There’s a real prospect we end up with a trade war,” said Dan Neidle, a tax partner at Clifford Chance, a law firm in London.

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Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

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