The way out of the digital tax war begins to open

The way out of the digital tax war begins to open
1617878173 978064 1617878266 rrss normal.jpg

Biden’s openness to big tech paying taxes where they generate their sales is a breakthrough

The long struggle to adapt international corporate tax rules to the digital age is about to take a step forward. There are still obstacles, but little by little a path opens up that circumvents them.

The key event came late on Wednesday with a new proposal from the United States on the distribution of tax duties between countries. The administration of President Joe Biden wants about 100 of the world’s largest companies, including tech giants like Facebook, to pay some taxes based on where sales are generated and not just where profits are reported, the report said. Financial times.

This is similar to the project proposed last year by the Paris-based Organization for Economic Cooperation and Development, which oversees negotiations between some 135 governments on corporate tax reform. When a French company buys advertising on Google searches to target a local consumer, for example, the proposed rules would mean that the French Ministry of Finance would get more of the price paid to Alphabet, rather than see how much of it profits flow to Ireland and the US.

The new proposal would likely also affect consumer groups such as LVMH, which may owe some tax on their sales in the United States. However, digital companies account for between 30% and 40% of the business profits that are being discussed in the OECD, a person familiar with the conversations told Breakingviews.

The Biden award could unlock a much higher prize, that of a minimum corporate tax rate worldwide. Most of the major governments participating in the OECD talks agreed that this was necessary, but US intransigence on digital taxation under former President Donald Trump halted progress.

The new momentum means that possibly reluctant countries like Ireland, the Netherlands or Luxembourg would have little hope of avoiding a coup. Countries can effectively impose minimum taxes unilaterally by requiring companies to pay the difference between that minimum and the corporate tax that the company is already paying. By getting Britain, France, India, Germany and other countries to join the initiative, Biden can corner tax havens.

Domestic politics could derail the talks. French President Emmanuel Macron will try to sell Biden’s new proposal as a major setback from the United States, while the American president will have to argue otherwise in Congress. One or both efforts may fail. But for the first time in a long time, the heads of major Western governments appear to be on the same page about global corporate tax reform. That is already progress.