US drops tariff threat against nations who dished out digital taxes to American tech giants as OECD members hash out new deal

15% tax minimum to hit tech firms

The US government and administrations in Europe have come to an agreement that will drop the threat of tariffs in response to policies on digital services taxes (DSTs).

The Department of the Treasury announced the deal would mean Austria, France, Italy, Spain, and the United Kingdom could keep their DSTs while multinational rules negotiated with the Organization for Economic Co-operation and Development (OECD) were introduced.

Back in June, nations where digital services taxes were deemed to disproportionately affect the US tech industry were threatened with 25 per cent tariffs on up to $2bn of their goods by the Office of the US Trade Representative (USTR). At the same time, it announced an immediate 180-day suspension of the tariffs so G20 and OECD nations had time to complete their negotiations on a global tax law, which would also hit tech companies.

The USTR's announcement followed a year-long investigation of DSTs. The probe concluded, according to the USTR's initiation notice [PDF] for the tariffs, that DSTs "diverge from norms reflected in the US tax system and the international tax system."

Earlier this month, the OECD finally agreed its plan on global tax laws that could lead to Big Tech paying more no matter where they operate.

Encompassing 136 countries and jurisdictions and 90 per cent of global GDP, the plan imposes a minimum 15 per cent tax rate on corporate profit starting 2023 on large multinational companies, the OECD said. The US, UK, China, India, and all European Union nations are among those onboard.

The aim of the agreement is to discourage big business – tech giants included – from moving profits out of certain countries to low-tax havens and avoid levies. However, the minimum 15 per cent tax rate will apply only to companies with yearly sales above €750m.

But it was enough for the US to suspend its threat of tariffs for certain nations until the new OECD rules come into place.

US ambassador Katherine Tai said in a statement: "I commend Austria, France, Italy, Spain, and the United Kingdom for addressing US concerns regarding unilateral digital services taxes.

"We reached our agreement on DSTs in conjunction with the historic OECD global agreement that will help end the race to the bottom over multinational corporate taxation by levelling the corporate tax playing field."

The UK government said of the move:

As part of today's deal the US will not levy tariffs in response to the UK's DST, which was introduced in April 2020. The UK will also keep the revenue raised from the DST until the Pillar One reforms become operational [in 2023].

The DST credit agreement outlines that ... firms will be able use the difference between what they have paid in DST from January 2022, and what they would have paid if Pillar One had been in effect instead, as credit against their future corporation tax bill.

The US agreement to lift the tariff threat does not include other countries that have imposed digital services taxes like India and Turkey.

Questions remain on how tech corporates will respond to the OECD rules. If history is anything to go by, it will depend. In August 2020, eBay assured the 300,000 third parties that use its online marketplaces it would continue to absorb the UK government's Digital Services Tax rather than pass it on, for example.

However, arch-rival Amazon did say that the DST would be passed on to traders. We're quite sure they'll be cutting those back now, right Jeff? ®

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