If President-elect Joe Biden bats the thorny question of tech taxes down the road the way Democratic predecessor Barack Obama did, investors will pay the price.
U.S. tech giants are already handing over so-called digital-service taxes to the French government. Unless the incoming administration restarts global efforts to reform corporate-tax rules, the likes of Alphabet, Apple and Facebook will soon face myriad such levies around the globe. On Thursday, the U.S. trade representative said it would delay retaliatory action against France promised by President Trump, essentially leaving the problem for Mr. Biden.
U.S. backing is crucial for a deal. The Organization for Economic Cooperation and Development started working in 2013 to update industrial-era corporate tax rules for online companies and crack down on what many countries see as aggressive tax avoidance. But the project was soon shelved because of a lack of support from then-President Obama.
Mr. Biden won’t necessarily hold the same view of global tax reform he did back then. A lot has changed politically and economically. The incoming administration has also talked of taking a much stronger stance on the regulation and antitrust treatment of big tech companies.
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With a technical solution in sight, a deal could be done this year if the U.S. wants it. Mr. Trump’s 2017 tax overhaul changed the rules at home, renewing the U.S. Treasury’s interest in global reform. That revived the OECD project, which made rapid progress until last summer. It stalled after Washington appeared to get cold feet.
Most policy makers across the world would prefer global reform to unilateral action, but are tired of waiting. More than 15 countries have now proposed or introduced DSTs as an interim measure, in an effort to push the U.S. to negotiate.
France led the way, launching a 3% tax on digital-service revenues in 2019 that would be removed if new global rules are agreed. Mr. Trump responded by threatening tariffs against Paris—a 25% charge on $1.3 billion of imported French luxury goods. Both levies were postponed last year in the hope that a global tax deal could be sealed by the year-end, but no agreement emerged. Last month, France billed over €400 million in digital-service taxes for 2019.
On Wednesday, a stay of execution for Washington’s retaliatory tariffs expired. But rather than following through on its threat, the U.S. trade representative said it wanted a “coordinated response.” It is working on similar anti-DST measures against Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey and the U.K.
There is bipartisan frustration in Washington with taxes targeting U.S. tech giants. Mr. Biden is more likely to use diplomacy or multilateral institutions like the World Trade Organization, but will probably keep the Trumpian option of tariffs in his back pocket.
The president-elect has a very long to-do list, and it is unclear where global corporate tax reform will rank. However, the DSTs in France and other countries will likely force the issue. The OECD is due to update G-20 finance ministers this summer. If there isn’t significant progress by then, the global tax reform project will probably be back on the shelf and investors should brace for more trans-Atlantic fireworks.
This story has been published from a wire agency feed without modifications to the text.
