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U.S.'s Mnuchin: End digital services tax plans to pave way for OECD-led global deal

Credit: REUTERS/CARLOS JASSO

U.S. Treasury Secretary Steven Mnuchin urged all countries to suspend plans for digital services taxes that Washington believes unfairly target U.S. tech companies, to allow the OECD to reach an agreement on international taxation.

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WASHINGTON, Dec 4 (Reuters) - U.S. Treasury Secretary Steven Mnuchin urged all countries to suspend plans for digital services taxes that Washington believes unfairly target U.S. tech companies, to allow the OECD to reach an agreement on international taxation.

In a letter to the Organization for Economic Cooperation and Development (OECD) dated Tuesday, Mnuchin underscored U.S. concerns about digital services initiatives launched by France and other countries that target revenues, not profits.

In the letter, which was viewed by Reuters, he said U.S. taxpayers supported greater tax certainty, but worried that changing the mandatory rules for when countries have the right to tax companies could affect "longstanding pillars of the international tax system upon which U.S. taxpayers rely."

The rise of big internet companies like Google owner AlphabetInc GOOGL.O and Facebook IncFB.O has strained current tax rules since such corporations can legally book profit and park assets like trademarks and patents in low-tax countries such as Ireland regardless of where their customers are.

The U.S. government on Monday said it may slap punitive duties of up to 100% on $2.4 billion in imports from France of Champagne, cheese and other products, after concluding that France's new 3% digital services tax would harm U.S. tech companies.

Washington also said it was exploring whether to open similar investigations into the digital services taxes of Austria, Italy and Turkey, but made no mention of proposed digital taxes in Canada or Britain.

British Prime Minister Boris Johnson on Wednesday said he would press ahead with new digital services taxes despite U.S. objections.

Mnuchin's letter and the U.S. trade representative's report followed months of negotiations between French Finance Minister Bruno Le Maire and Mnuchin over a global overhaul of digital tax rules.

The two struck a compromise in August at a Group of Seven summit in France that would refund U.S. companies the difference between the French tax and a new mechanism being drawn up through the OECD.

In his letter, Mnuchin said the United States looked forward to working with the OECD, but had "serious concerns" about any moves to abandon certain current taxation structures such as arm's-length transfer pricing and taxable nexus standards.

He said concerns could be addressed by creating a safe-harbor regime under Pillar One, the first spate of taxation reforms that the OECD wants to complete by January.

The OECD in October released its proposal for overhauling cross-border tax rules that go back to the 1920s, which would give governments more power to tax big multinationals doing business in their countries.

(Reporting by David Lawder and Andrea Shalal Editing by Chizu Nomiyama and Jonathan Oatis)

((andrea.shalal@tr.com; +1 202-815-7432;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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