The United States is increasing pressure on other countries for negotiations on digital service taxes, opening new investigations to countries planning higher tasks at the technology giant.
That U.S. trade representative Tuesday announced it was investigating Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey and Britain for implementation or planning to file new taxes on the digital giant. The subject had triggered a split between the US and France before and that could ultimately mean higher trade tariffs for these countries.
“A warning shot from USTR to signal the seriousness and urgency, and to put more pressure on the OECD process to move quickly and towards the US,” David Livingston, a senior analyst at the US-based Eurasia Group, told CNBC Tuesday.
France was the first major economy to enact digital service tax laws, but after threats from the United States that it would charge more than French exporters, Paris decided to postpone the collection of the first payment until 2021.
Meanwhile, the Organization for Economic Cooperation and Development (OECD) has worked on a plan that will bring the US, France and other countries together on how to tax digital companies.
The OECD will present plans at the end of 2020. France says that if international talks fail, technology companies will still have to pay taxes.
OECD agreement opportunities
“If the US continues with the aim of making voluntary taxes, an agreement is very unlikely, so this step puts pressure on these markets, whether they want to stick to (tax) if rates are introduced,” Dexter Thillien, a senior industry analyst at Fitch Solutions, told CNBC Wednesday.
US. signaled at the beginning of the year that it would support some aspects of digital taxation if the scheme was voluntary and not mandatory for American companies. This idea sparked criticism from French officials because American companies represent the largest technology companies in the world.
“This is an interesting time,” Jeremy Ghez, an affiliate professor at H.E.C. Business School in Paris, told CNBC Tuesday.
“You have to realize that a fairer part of the tax burden can help various economies better adapt to the coming wave of transformation,” he said, referring to the growing change to the digital economy.
At the same time, many countries are in dire need of new cash because the coronavirus crisis has brought new challenges. In this context, European Commission, the European Union’s executive body, said last week the bloc had to apply new tasks to the technology giant as a way to increase revenue in times of severe economic hardship.
The Brussels-based agency said earlier that digital companies paid an average effective tax rate of 9.5% in the EU – compared with 23.2% for traditional businesses. The tech giants argue that they pay as much tax as is legally required.
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