Biden removes Trump's MAGA roadblock to a global Digital Services Tax, but we're not there yet...

Profile picture for user slauchlan By Stuart Lauchlan March 1, 2021
Summary:
The prospect of a global Digital Services Tax proposal from the OECD is back on the table - and the US is back sitting at that same table. But we're not over the finishing line yet...

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(Pixabay )

Last month diginomica asked whether the arrival of Joe Biden as US President might finally pave the way for progress on a global agreement on a Digital Services Tax. The answer, it seems, is yes, it just might, after the US announced it was backing away from the roadblocks that Biden’s predecessor put in the way of a deal.

The story so far - sundry national governments around the world take the same view that large digital services, mostly - but not exclusively - US in origin, are making too much money but not paying enough tax out of their local operations, instead using legal arrangements to avoid paying their dues.

In order to address this, there have been various efforts to come up with an International standard for a Digital Services Tax (DST). An attempt by France to railroad the European Union into agreeing a plan whereby tax would be due to member states based on the amount of business companies did in those states, failed when other EU nations were (a) wary of discouraging US firms to invest in their countries and (b) fed up of being told what to do by the French.

As a results, various national DSTs have been announced, by countries such as Italy, the UK and, yes, France, all covered by a caveat that if the OECD - Organization for Economic Co-operation and Development - could come up with a consensus global standard, the local iterations can be stood down. The OECD promised a first draft of such a standard by mid-2019, but this inevitably failed to appear.

Still, everybody agreed that this was an enormous global priority and such was its importance that there was no Plan B.

Well, when we say ‘everybody’, we mean everybody except Donald Trump.

The US was hostile to moves by the likes of the UK and France pushing ahead with their own DSTs, seeing them as deliberately targeting US firms. This hostility started with threats of wine wars with France, but escalated rapidly to the Trump administration picking up its ball and saying it wouldn’t be playing with the OECD mean kids anymore.

But Trump is gone - for now, at any rate - and the new Washington regime is intent on playing nicer with its allies. One beneficiary of that is that the prospect of a stab at a global standard is back on the cards.

Trump had basically demanded that US companies had to be allowed to not take part in any global scheme…which would rather have defeated the point of the exercise. But it was a logical extension of his comment that:

I'm not going to let people take advantage of American companies. If anyone is going to take advantage of American companies, it's going to be us!

But Biden’s Treasury Secretary Janet Yellen has confirmed that the US is back at the table and that the new administration in Washington is not long insisting on ‘safe harbor’ exemptions for US firms.  She said the US will "engage robustly” with the OECD on both the tax challenges of digitization and the robust global minimum tax. In a letter to her G20 colleagues, Yellen says:

The pandemic has moved much of work and life online. We must invest in efforts to help people adapt to this increasingly digital world…As we know, the changing global economy presents new challenges for corporate taxation. The United States is committed to the multi-lateral discussions on both pillars within the OECD/G20 Inclusive Framework, overcoming existing disagreements, and finding workable solutions in a fair and judicious manner.

The shift in the US stance now clears the way for the delayed first draft of an agreement to appear by mid-2021. French Finance Minister Bruno le Maire, one of the most publicly-outspoken advocates of DSTs, commented:

Finding an agreement by summer is within reach, especially now that the United States have confirmed they are dropping the safe harbor principle.

Meanwhile his German counterpart Olaf Scholz concurred:

This is a giant step forward on our path towards an agreement among the participating states by the summer.

My take

This is clearly good news and gets the DST global conversation back on track. It’s far from the end of the story though. We’re talking about an International accord here among parties with a myriad of vested interests. It’s one thing having every Finance Minister or equivalent issuing statements acknowledging that ‘something must be done’; it’s quite another getting that something done. All too often, everything is harmony and consensus at the theoretical stage, then once things get to implementation stage, everyone fights like a bag of cats.

With that in mind, it would be helpful all round if France’s enthusiasm - bordering still on the overtly pushy and demanding - can be constrained while other countries get up to speed. 

Of course, no-one should assume that just because the US President is no longer spouting “America First” and “MAGA, MAGA, MAGA” as first responses to any issue that somehow the Biden administration is not going to represent the best interests of US business first and foremost.

And even if a deal emerges by the summer, it will then have to pass the US Congress, a far from certain ratification. If you listen real closely, you can almost hear the tech sector lobbyists powering up the expense accounts for action…