Global rules on taxing tech firms move closer as US drops Trump-era objection

Janet Yellen tells G20 ministers the US is no longer seeking ‘safe harbour’ concept

A global standard on taxing tech companies moved a step closer on Friday after the US signalled it would drop a Trump-era objection to OECD proposals on digital taxation.

US treasury secretary Janet Yellen told a G20 meeting of finance ministers that the US was no longer seeking the "safe harbour" concept advocated by her predecessor Steve Mnuchin – a provision that would have effectively allowed US tech companies to opt into the global standards voluntarily. That proposal had been strongly opposed by European countries. Ms Yellen's decision removes a key stumbling block to an agreement on global rules regarding digital tax. It paves the way for the adoption of international rules on taxing global tech companies as early as this summer.

The introduction of a global approach to taxing digital companies poses challenges for the State, given the importance of the corporation tax it currently receives from tech giants, though the Government has been a strong supporter of OECD measures to address the issue of digital taxation.

Shift welcomed

G20 finance ministers, including those from Germany and France, welcomed the shift in policy from Washington after Friday's virtual meeting.

"Today we saw a strong tailwind for a fair taxation of the large digital corporations," German finance minister Olaf Scholz said, adding that it was a "giant step" towards reaching agreement in this regard by the summer.

French finance minister Bruno Le Maire said that the US's confirmation that it had given up on the safe harbour principle means that "getting an agreement by the summer is within reach". Ibec chief economist Gerard Brady said that the announcement by the Biden administration is "very meaningful for the prospects of agreement by July". But he cautioned that an OECD agreement would prove a competitiveness challenge to the Republic's business model. "We will need to look to invest in other competitiveness levers such as education, research and development, and critical infrastructure."

Covid relief

Meanwhile in Washington, the US House of Representatives was poised to vote on president Joe Biden's $1.9 trillion Covid relief package on Friday – a key legislative priority for the new president. But in a blow to the administration, it appeared that a proposal to increase the federal minimum wage to $15 an hour would be absent from the final package going before the Senate. On Thursday evening, the Senate parliamentarian ruled that changes to the minimum wage could not form part of the fast-track legislative process that is being used by the Senate to pass the Covid relief package Bill.

Mr Biden said he was "disappointed" by the decision. While the House was expected to keep the minimum wage proposal in its version of the Bill that was due to go to the floor on Friday night, Senate Democrats must now consider alternative ways to achieve a change to the federal minimum wage.

Alternative legislative routes for increasing the wage are likely to need a 60-vote majority in the Senate – a prospect that seems remote given widespread opposition among Republicans towards increasing the federal minimum wage.