US drops tariff threat in digital tax transition deal

The United States withdrew its threat of tariffs against five European countries over their digital services taxes. This is as a part of a deal to manage the transition to a new global tax regime for large highly profitable corporations. Austria, Britain, France, Italy, Spain will get to keep their digital taxes in place until a global tax agreement comes into force.

As a part of a sweeping global tax deal, the countries had agreed to withdraw their digital services taxes. 136 countries are going to adopt a 15% global minimum corporate tax. They will also grant some taxing rights on large profitable companies to market countries. The timing and method of the digital tax withdrawals, largely aimed at big U.S. tech firms such as Google Facebook and Amazon. Under the agreement, any digital taxes the countries collect from such firms after January 2022 that exceed what they would have to pay under the new rules would be credited against the firms’ future tax liabilities in those countries.

The United States in exchange to this, has agreed to drop its planned tariff retaliation. This is against the five countries on the grounds. The agreement does not include India and Turkey. Because they have imposed digital services taxes and face tariff threats. U.S. Trade Representative Katherine Tai said that they reached their agreement on DSTs in conjunction with the historic OECD global agreement that will help end the race to the bottom over multinational corporate taxation by leveling the corporate tax playing field. She added that the USTR and the U.S. Treasury would work with the five governments. This is to ensure implementation of the agreement and rollback of existing DSTs. Britain’s finance minister, Rishi Sunak, stated that the deal would allow continued collection of DST revenues.