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Treasury Secretary Says Italy, U.K. Face Tariffs Over Digital Taxes

By:
Ruth Singleton
Published Date:
Jan 21, 2020
Steven_Mnuchin_official_portrait-cropped

Treasury Secretary Steven Mnuchin warned Italy and the United Kingdom that they would face U.S. tariffs if they impose taxes on digital companies such as Facebook, Google, Amazon and Apple, according to the Wall Street Journal. Speaking this week at the World Economic Forum in Davos, Switzerland, Mnuchin also said that French President Emmanuel Macron had agreed not to impose France's own digital tax plan through the end of the year while the two countries work out a permanent resolution.

France announced a digital tax plan last year so that it could collect revenue from tech companies that pay little or no tax on substantial sales in France. According to Accounting Today, the United States has argued that the French tax discriminates against American technology companies, citing Section 301 of a 1974 American law that Trump has previously reserved to justify tariffs against China. As a result, the United States threatened to impose duties of up to 100 percent on $2.4 billion of French goods, including luxury items like wine, cheese and makeup.

Italy’s parliament passed a similar tax last year, and it was set to take effect this year. The United Kingdom has been planning to implement a similar tax this year.

At Davos this week, Mnuchin said the U.S. position is that France’s digital tax was an unfair levy on gross revenue. He said that he hoped Britain and Italy would suspend their plans. “If not they’ll find themselves faced with President Trump’s tariffs. We’ll be having similar conversations with them.”

The Organisation for Economic Co-operation and Development (OECD), an intergovernmental organization, began working last year on three possible plans for an international tax regime covering the complex world of tech profits.

According to the Journal, in October 2019, there appeared to be progress toward a deal that would give more taxing power to countries in which consumers are based, rather than where patents, licenses and brands are owned or where businesses have headquarters. That arrangement would benefit countries with large consumer markets but no major technology companies, such as France and Italy. But because it would affect not just tech firms, but all large, consumer-oriented companies, U.S. companies began to raise concerns with the Treasury department.

In response to those complaints, Mnuchin last month sent a letter to the OECD, in which he mentioned these concerns about the emerging agreement. As an alternative, he proposed a system whereby companies could choose whether to operate under new OECD-brokered rules or to stick with the current system.

That was not acceptable to some European countries. Without a change to the tax rules, many European governments face the prospect of steadily eroding corporate tax revenues. They rely on these revenues to a significant extent to fund state-run health, education and welfare programs that are larger than those in the United States. The U.S. position against new digital taxes could leave these governments with the unpalatable options of cutting those programs or participating in a trade war.

‚ÄčThe U.K. government on Jan. 21, said that it plans to go ahead with its digital services tax in April. A representative of the U.K.’s Treasury said, “We are fully engaged in international discussions to address the challenges digitalization poses for tax. Our strong preference is for an appropriate global solution. It will be repealed once a global solution is in place.”

Italy’s government declined to comment to the Journal.

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