Plans for Global Digital Tax postponed to 2021
Updated: 3 days ago
The push for the implementation of a global digital tax on the world’s tech giants has been halted, due to the major political differences among the negotiators that have not yet been overcome.
Despite the prolonged and repeated efforts to reach this milestone agreement by the end of 2020, Pascal Saint-Amans, the Head of the tax policy centre at the OECD, revealed that the new rules would “likely be decided by June 2021.”
Finding a comprehensive agreement at the global level remains a difficult challenge, given the countries’ divergent positions on the two main areas of the digital tax, known as Pillars One and Two. Pillar One aims to “determine how to tax companies’ digital activities where they do not have a physical presence,” while Pillar Two would introduce a “minimum level of corporate taxation” worldwide. The staunchest opposition, especially with regards to the second pillar, has come from the United States. Washington has endeavoured to make the entire global digital tax agreement optional, to the alarm of its counterparts, given the significance of the US in the world order and in the technological sphere in particular – as many of the world’s largest tech companies are American.
Furthermore, the debate between the US and Europe, and China to a lesser extent, has intensified with regards to determining the range and revenue levels of the companies that are to be included under the prospective new agreement. While European countries have been eager to “narrow the global regime’s focus solely on digital companies,” the US and China have been pushing to extend that definition to a broader range of consumer-facing companies.
Given the difficulties and risk of failure in the negotiations, France’s finance minister Bruno Le Maire publicly called on the EU to pursue a bloc-wide digital tax for “Europe to set the example” at the global level.
Several EU member states including France and Italy have designed national digital tax plans, but these have remained on the books to “give time” for a global agreement to be reached, and to avoid a trade war escalation with the US.
Despite these contentions, and the negotiation delays caused by the COVID-19 pandemic, OECD officials remain optimistic about the possibility of having a global digital tax by mid-2021. “There is a willingness among countries to reach a compromise,” said Pascal, as most governments do not want to return to companies offshoring profits to low-tax jurisdictions.