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EU puts plans for digital tax on hold in face of U.S. criticism

Treasury Secretary Janet L. Yellen
The European Commission’s announcement came as U.S. Treasury Secretary Janet L. Yellen, shown in May, was meeting with Eurozone counterparts and high-level EU officials.
(Patrick Semansky / Associated Press)

The European Union has put plans for a digital levy on hold for the moment to concentrate on finalizing the historic decision by the Group of 20 nations to back a global corporate tax, officials said Monday.

In the face of U.S. criticism, the European Commission said that its work on the digital tax, which would primarily hit American technology companies, would be temporarily shelved to allow for smooth cooperation on the political and technical hurdles that still need to be addressed on the G-20 tax decision before the end of October.

“Successfully concluding this will require a final effort, a final push from all parties. And the [European] Commission is committed to focusing on that effort,” EU spokesman Dan Ferrie said. “For this reason, we have decided to put on hold our work on a proposal for a digital levy as a new EU resource during this period.”

Over the weekend, finance ministers from the G-20 major economies endorsed a global minimum corporate tax of at least 15%, a measure aimed at putting a floor under tax rates and discouraging companies from using low-rate countries as tax havens.

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The proposal faces political and technical obstacles before it could take effect. Details are to be ironed out in coming weeks at the Organization for Economic Cooperation and Development in Paris, followed by a final endorsement by G-20 presidents and prime ministers at an Oct. 30-31 meeting in Rome.

Countries would then need to legislate the rate into their own laws. The idea is for headquarters countries to tax their companies’ foreign earnings at home if those earnings go untaxed in low-rate countries. That would remove the reason for using complex accounting schemes to move profits to subsidiaries in low-tax nations, where companies often do little or no actual business.

130 countries support a global minimum tax as part of a worldwide effort to keep multinational firms from dodging taxes by shifting profits to countries with low rates.

Outside of that, the EU has also tried to focus on companies that make profits in countries where they have no physical presence. That could be through digital advertising or online retail. Countries led by France have started imposing unilateral “digital” taxes that hit the biggest U.S. tech companies such as Google, Amazon and Facebook.

The U.S. calls those unfair trade practices, and has threatened retaliation through import taxes.

The European Commission’s announcement came as U.S. Treasury Secretary Janet L. Yellen was meeting with Eurozone counterparts and high-level EU officials.


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