US Withdraws from International Digital Tax Negotiations

On 17 June US Trade Representative Robert E. Lighthizer confirmed that the US was withdrawing from OECD Inclusive Framework discussions on taxation of the digital economy. The decision was communicated to European Finance Ministers in a letter last week, igniting fears of a trade war between the EU and US.   The OECD published a public statement in response to the developments, with OECD’s Secretary-General, Angel Gurría, stating “All members of the Inclusive Framework should remain engaged in the negotiation towards the goal of reaching a global solution by year end…Absent a multilateral solution, more countries will take unilateral measures and those that have them already may no longer continue to hold them back. This, in turn, would trigger tax disputes and, inevitably, heightened trade tensions. A trade war, especially at this point in time, where the world economy is going through a historical downturn, would hurt the economy, jobs and confidence even further. A multilateral solution based on the work of the 137 members of the Inclusive Framework at the OECD is clearly the best way forward.”   EU Commissioner for the Economy, Paolo Gentiloni, responded to the decision statingWe need a digital tax adapted to the reality of the new century. An agreement is needed in the global negotiations. If the American withdrawal makes it impossible, the EU Commission will put a new European proposal on the table”. A failure to agree an agreement at international level will very likely lead to a raft of further unilateral digital taxes being introduced, and retaliatory tariffs, escalating to trade wars.   A virtual meeting of the Inclusive Framework is scheduled to take place in July to discuss progress made by the working groups. It was expected that details of the key policy features would be agreed and made public in October and a report produced for the G20 by the end of the year on the final solution agreed on by the Inclusive Framework.  
Ref.: CFE’s Global Tax Top 10 – June 2020

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