May 6, 2021

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U.S. lifts stumbling block to global digital tax deal

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U.S. Treasury Secretary Janet Yellen told G20 finance ministers that Washington would drop a contentious part of its proposed reform of global digital tax rules that had been the main stumbling block to a deal.

The move could unblock long-stalled multilateral negotiations at the OECD, which struggled to progress after the Trump administration first insisted on the “safe harbor” measure in late 2019.

This provision would have allowed technology companies to honor any agreement on a voluntary basis.

Yellen told a meeting of G20 finance ministers on Friday that the United States “is no longer advocating the implementation of the Safe Harbor,” a US Treasury official told the Financial Times.

The United States “will make a strong commitment to address the two pillars of the OECD project, the fiscal challenges of digitization and a robust global minimum tax,” the official said.

Italian Finance Minister Daniele Franco, who co-chaired the meeting, told a press conference afterwards that the G20 aimed to reach a solution by “mid-2021”.

“It is necessary to reform the current system; this has become an urgent task as we face the challenges of globalization and the digitization of the economy, ”he said.

Another official close to international tax negotiations said the United States “wants a two-pillar deal [of the proposals] by July. . . the next few weeks will be crucial but the momentum has never been so positive ”.

Yellen’s break with the Trump administration’s stance on the digital tax came a day after it also dropped Washington’s objections to further financial support for low-income countries through an allocation of Special Drawing Rights ( SDR), the reserve currency of the IMF.

“Allocating new Special Drawing Rights to the IMF could improve the liquidity of low-income countries to facilitate their much-needed efforts in health and economic recovery,” Yellen said in a letter to G20 finance ministers and to central bank governors on Thursday. “We are eager to discuss potential modalities for the deployment of SDRs [with other G20 nations]. “

The last time the IMF allocated a new batch of SDRs was in 2009 during the global financial crisis.

Support for financial aid is widespread among G20 countries, so Washington’s move could pave the way for up to $ 500 billion to help inject into the global economy. However, the detail has not yet been settled; the United States wants SDR allocations from advanced economies to be passed on to low-income countries that need more financial assistance.

Kristalina Georgieva, Managing Director of the IMF, said on Friday she was “very encouraged by the growing support” for a new SDR allocation “to increase the reserves of all members in a transparent and accountable manner” and to provide “a mechanism extra to allow our richest members to support low-income countries by on-lending part of their SDRs ”.

“We are ready to present our members with a solid assessment of long-term reserve needs and modalities of implementation,” Georgieva said.

The grim prospects for a multilateral digital tax deal under the Trump administration have led a number of countries, mostly in Europe, to introduce or consider their own levies on big tech companies, in an effort to keep them from pay little or no tax on their sales.

Washington opposed the tax measures as being unilateral and discriminating against Silicon Valley, making the dispute one of the biggest sources of transatlantic economic and trade tensions.

However, despite renewed hopes for a deal, much remains to be done before a new global regime can be introduced. Not only will a deal need to be finalized, but in the case of the United States, it will need to be approved by Congress, where changes in tax policy can be very controversial.



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