Talks about a global tax deal are continuing past the June 30 deadline, and now governments are looking to the G20 finance leaders meeting this week for progress. The goal is to reallocate taxing rights on large multinational companies.
The “Pillar 1” plan, part of a 2021 global tax deal, aims to replace individual digital services taxes (DSTs) on US tech giants like Google, Amazon, and Apple with a new mechanism to share taxing rights on a broader group of companies.
If no agreement is reached, several countries might reinstate their taxes on US tech giants, risking punitive duties on billions of dollars in exports to the US. Standstill agreements, where the US suspended threatened trade retaliation against seven countries (Austria, Britain, France, India, Italy, Spain, and Turkey), expired on June 30, but the US hasn’t imposed tariffs yet.
An Italian government source mentioned that European countries want assurances that US tariffs on $2 billion worth of annual imports from French Champagne to Italian handbags stay frozen while talks continue, including at the G20 meeting in Rio de Janeiro.
Top Priority
A European Union document for the G20 meeting lists finalizing the international tax deal as a “top priority.” It urges countries to finalize discussions on all aspects of Pillar 1, aiming to sign the Multilateral Convention (MLC) by summer’s end and ratify it as soon as possible.
Meanwhile, Canada in July became the eighth country to impose a unilateral digital services tax. Canada’s Finance Minister Chrystia Freeland said it wasn’t fair for Canada to indefinitely delay its measures after the June 30 deadline passed without a Pillar 1 agreement.
The US argues that such taxes are discriminatory because they target US technology firms’ local revenues. A US Treasury spokesperson said they oppose all tax measures that discriminate against US businesses and encourage finalizing the Pillar 1 agreement. A US Trade Representative spokesperson added that OECD/G20 negotiations offer the best solution to address challenges that the digitalization of the economy poses to the international tax system.
Smaller Firms Affected
Treasury Secretary Janet Yellen mentioned at a G7 finance meeting in May that India and China were hindering agreement on an alternative transfer-pricing mechanism known as “Amount B.” This mechanism would apply to thousands of companies below the $20 billion annual revenue threshold for “Amount A” and aims to provide tax certainty through an objective way of calculating tax liability, said Danielle Rolfes, head of KPMG’s Washington National Tax Practice.
At the G20 meeting in Rio de Janeiro, Yellen will also face questions about the continuity of US policy commitments following President Joe Biden’s decision not to seek re-election and concerns about a potential return of Donald Trump to the White House.
