Dec 2, 2020 - Technology

Showdown looms over digital services tax

Illustration of a computer mouse with a knotted cord shaped like a dollar sign
Illustration: Sarah Grillo/Axios

A fight over foreign countries' efforts to tax big American tech companies' digital services is likely to come to a head in January just as Joe Biden takes office.

The big picture: Governments have failed to reach a broad multilateral agreement on how to structure such taxes. That could leave the American firms that dominate consumer digital services — including Google, Facebook and Apple — stuck with massive tax bills from different countries.

Why it matters: The taxes would burden tech corporations and benefit the governments that levy them.

  • The digital services tax fight has also become a proxy for larger international conflicts, pitting European resistance to the power of American tech giants against a Trump-style "America First" protectionism in Washington.

The companies, along with global trade negotiators, are watching closely to see whether the Biden administration will change the tenor of the conversation.

  • The issue of global digital taxation "urgently requires a multilateral solution," and the Biden administration should lead the charge, Facebook's global policy chief Nick Clegg wrote in a Washington Post op-ed Monday.

Catch up quick: A digital services tax calculates what portion of gross revenue a company like Facebook or Google earns from activities and users within a nation's borders and requires the company to pay a percentage of that amount.

  • These taxes differ from country to country, but typically only apply to very large companies.
  • The French tax that's at the front of this fight sets the rate at 3%.

Background: Since 2019, a group of 137 countries (including the U.S.) have been negotiating the issue of digital taxes at the Organization for Economic Cooperation and Development, aiming to develop a new framework of uniform international digital tax rules.

  • The project has moved slowly in the face of tension between the U.S. and the EU.
  • Pascal Saint-Amans, head of the tax policy center of the OECD, told reporters in October that the new rules would probably be decided by June 2021.

France forged ahead late last month with its own plans for a digital services tax.

  • France has agreed to revoke its tax once an international deal is completed, and had planned on suspending its collection until then. It switched gears after concluding the Trump administration was not prioritizing the issue.
  • “We can’t wait any longer and the tech companies are the big winners of the pandemic,” one French official told the Financial Times.
  • Italy and the United Kingdom have also laid out plans for their own digital services taxes, and Canada is planning one for 2022.

Between the lines: Although the Trump administration has attacked Big Tech over allegations of anti-conservative bias and launched antitrust investigations into several key companies, the digital services tax fight puts the U.S. government in a more traditional role of defending tech firms as American success stories.

  • With France moving forward, the Trump administration is set to retaliate by imposing tariffs on certain French goods including makeup, soap and handbags on Jan. 6, though they may move to invoke the tariffs earlier.
  • The tariff escalation would muddy the waters for any effort by Biden's team to press reset on negotiations.

What's new: France, which has said it aims to earn 400 million euros this year from the tax, issued requests for digital tax payment in the millions of euros from U.S. companies like Facebook and Amazon late last month, Reuters reported.

What's next: France says that if the U.S. goes ahead with the planned tariffs in January, it will seek retaliation from the European Union.

  • Ned Price, a spokesperson for the Biden transition team, declined to comment on how the Biden administration would tackle this issue.

What they're saying: Daniel Bunn, vice president of global projects at the Tax Foundation, says Biden is more "globally minded" and he hopes the new administration will "lean forward" in negotiations over a digital tax rather than simply pile on more tariffs.

Some in Congress want an international agreement, but support the U.S. defending itself.

  • "France, and all countries considering DSTs, should abandon these unilateral measures, and focus their energies on the OECD’s multilateral process to reach a fair negotiated agreement," Sen. Ron Wyden (D-Ore.) said in a statement. "Otherwise the U.S. will have no choice but to use every available tool to defend against these predatory taxes.”
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