The US has suspended negotiations with European countries to create a new global tax system for technology companies such as Google and Facebook Inc, owned by Alphabet Inc. Financial times,
US Treasury Secretary Stephen Mnuchin wrote a letter to four European finance ministers, warning them that the discussions were at an impasse. He said the US cannot agree on temporary changes to global tax laws that affect large technology companies.
Mnuchin warned if European countries try to realize their own digital tax from american technology companies – this would pave the way for new tariffs.
France, Spain, the UK and Italy are some of the countries seeking to tax Apple, Facebook, Google and other US technology firms, claiming that these companies profit from the European market while making minimal contributions.
“Attempting to rush into such difficult negotiations distracts from much more important matters,” Mnuchin wrote in a letter dated June 12. (spotted by the Financial Times)“This is a time when governments around the world should focus on resolving the economic problems that have arisen as a result of Covid-19.”
The letter was sent to Rishi Sunak, Chancellor of the Treasury of Great Britain, French Minister of Economy Bruno Le Marais, as well as the finance ministers of Italy and Spain, who demanded to suspend negotiations on the global tax system.
“The United States continues to oppose taxes on digital services and similar unilateral measures,” Mnuchin wrote. “As we have repeatedly said, if countries decide to collect or accept such taxes, the United States will respond with appropriate appropriate measures.”
Mnuchin made it clear that he wants to resume negotiations at the end of six months. European countries are expected to respond to Mnuchin’s letter.
“The OECD has proposed a two-pillar compromise. The first proposed countries for the first time to get some rights to tax profits from sales in their jurisdictions. This applies not only to the American technology giants, but also, for example, will provide the USA with limited tax rights in relation to European luxury companies.
Secondly, the global minimum corporate tax rate will prevent countries from lowering corporate tax rates in an attempt to transfer the company’s headquarters to their jurisdiction.
Mr. Mnuchin insisted that discussions on the second pillar continue and that the parties are “much closer to an agreement.” He said the US hopes to complete these negotiations on a minimum world tax this year, according to the Financial Times.
Since negotiations are now suspended, progress has stalled, and if European countries begin to introduce individual taxes on American technology firms, a bilateral conflict between Europe and the US could happen – escalate into a “toothache” tariff war. This may be enough to harm the global economy, which has already been shaken by the economic collapse caused by the virus.