Brussels is set to delay plans for its controversial digital levy until the autumn in an effort to boost the prospects of a global corporate tax reform deal.
The move followed the endorsement by G20 finance ministers in Venice over the weekend of a landmark global tax deal reached by G7 nations last month to set a worldwide minimum rate and to overhaul taxing rights.
US treasury secretary Janet Yellen on Sunday said that the newly endorsed mechanism to allow more countries to tax large, highly profitable multinational companies may not be ready for consideration by lawmakers until spring 2022. She also said the G20 would try to bring the holdouts, including Ireland, which has a corporate tax rate of 12.5 per cent, towards accepting the agreement, but added that their assent was not needed to move forward. Ms Yellen and Minister for Finance Paschal Donohoe are to meet in Brussels tomorrow for a Eurogroup meeting in which the weekend’s developments on corporate are likely to be disucesed.
The European Commission had come under intense pressure from Ms Yellen to shelve its digital tax proposal, according to people familiar with the discussions.
Brussels was due to put forward its proposals for the digital levy this week, but had pushed them back to July 20th.
“The commission is reflecting on how to support the historic G20 deal. In that context we are considering a possible postponement to the autumn of the detailed proposal on the digital tax,” an official said.
The official stressed the final decision had not yet been taken and would be subject to discussion when commission president Ursula von der Leyen meets Ms Yellen on Monday. The US treasury secretary is expected to discuss the issue at a meeting with eurozone finance ministers.
The prospect of a delay was welcomed by Pascal Saint-Amans, head of tax administration at the OECD.
“The postponing of the EU digital levy is good news,” he said. “It is wiser indeed to wait for the deal to be finalised and not risk any disruption with ongoing complicated legislative processes.”
Brussels was mandated by EU leaders last July to put forward a digital levy as part of a set of tax measures aimed at raising fresh sources of revenue for the commission, in order to help it pay off the €800 billion it is set to raise for its recovery fund.
The digital levy idea is strongly opposed in Washington, which fears that a go-it-alone EU approach would threaten the global tax talks. Any levy that looks as if it is targeting tech companies risks provoking a backlash on Capitol Hill, making the Biden administration’s job of getting the corporate tax overhaul through Congress even tougher.
EU officials stress the digital proposal will differ from a 2018 plan for a tax that targeted the world’s largest tech companies - a measure that ultimately foundered due to opposition from smaller member states. Instead, Brussels has said it will potentially target hundreds of companies with digital operations - rather than specifically aiming at the US tech giants.
In Venice G20 finance ministers urged “all members of the OECD . . .that have not yet joined the agreement to do so”. They called on all countries in the negotiations to “swiftly address the remaining issues and finalise the design elements” by the next G20 meeting in October.
These include various carve-out agreements that would let some countries use opt-outs from the deal to encourage investment.
Ms Yellen hailed the G20’s progress, saying in a statement at the conclusion of the summit that “the world is ready to end the global race to the bottom on corporate taxation, and there’s broad consensus about how to do it”.
Bruno Le Maire, France’s finance minister, called the tax deal “a once-in-a-century tax revolution”.
The next steps for the October G20 meeting will be to fix a globally agreed minimum tax rate and work out how revenue from taxation will be allocated between countries. –Copyright The Financial Times Limited 2021