- Negotiations on a global tax agreement have extended beyond June 30, with governments eyeing progress at the upcoming G20 meeting.
- The high stakes of these negotiations could lead to the reinstatement of taxes on US tech giants by several countries if a final agreement is not reached.
OUR TAKE
The growth of the digital economy has posed new challenges to the traditional tax system, and the “Pillar 1” plan for a global tax agreement in 2021 was created with the aim of equitably redistributing the tax rights of large multinational corporations through a new tax regime. However, the negotiation process has not been smooth, and the 30 June deadline has passed without the final terms of the global tax deal being agreed. Against this backdrop, the G20 Finance Ministers’ meeting has become a key platform for all parties to seek a breakthrough.
–Elodie Qian, BTW reporter
What happened
Negotiations on a global tax agreement have extended beyond the initial deadline of June 30, with governments now eyeing progress at the upcoming G20 finance leaders’ meeting.
The “Pillar 1” plan, a component of the 2021 global tax deal, seeks to replace unilateral digital service taxes on major US tech firms such as Google, Amazon, and Apple. The aim is to establish a new mechanism for sharing tax rights among a broader range of companies on a global scale.
The high stakes of these negotiations could lead to the reinstatement of taxes on US tech giants by several countries if a final agreement is not reached, potentially risking punitive duties on billions of dollars’ worth of exports to the US.
Standstill agreements under which Washington has suspended threatened trade retaliation against seven countries — Austria, Britain, France, India, Italy, Spain and Turkey — expired on June 30, but the U.S. has not taken steps to impose tariffs.
European countries are pushing for assurances that the US will maintain its freeze on tariffs affecting around $2 billion worth of annual imports, including French Champagne and Italian handbags and optical lenses, as discussions continue at the G20 meeting in Rio de Janeiro.
Also read: New Zealand to Introduce 3% Digital Services Tax on Global Tech Giants
Also read: Nigerian court to commence Binance tax evasion trial in October
Why it’s important
The EU has listed finalizing the international tax deal as a “top priority” in its document prepared for the G20 meeting, urging countries to finalize discussions on all aspects of Pillar 1 and sign the Multilateral Convention (MLC) by the end of summer.
Canada has joined the ranks of countries imposing unilateral digital service taxes, with Finance Minister Chrystia Freeland stating that it is “simply not reasonable, not fair for Canada to indefinitely put our own measures on hold” after the June 30 deadline passed without a Pillar 1 agreement.
The US opposes such taxes, viewing them as discriminatory against US businesses, with a Treasury spokesperson encouraging countries to finalize work on the Pillar 1 agreement.
The US Trade Representative’s office also supports the OECD/G20 negotiations as the best path to address the challenges posed by the digitalization of the economy to the international tax system.
Treasury Secretary Janet Yellen has noted that the “Amount B” would apply to thousands of companies below the $20 billion annual revenue threshold. This mechanism aims to provide tax certainty to these firms through an objective method of calculating tax liability.
At the G20 meeting, Yellen is expected to address concerns about the continuity of US policy commitments following President Joe Biden’s decision not to seek re-election and the growing international anxiety over the potential return of Donald Trump to the White House.
