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Japan and France speak out on digital tax plans

Countries hoping to set global digital tax norms feel the USA is dragging its feet

The USA is under fire from two of its allies and fellow members of the Organisation for Economic Cooperation and Development (OECD) over plans to set digital tax rates at an international level.

The OECD is in the process of developing rules that would see digital companies, such as Facebook, Google or Amazon, pay tax where they do business and not where they set up subsidiaries, with the aim of having technical details agreed by July this year.

On Sunday, finance leaders for the G20 group of economically advanced nations met in the Saudi Arabian capital, Riyadh, where they broadly supported the proposal.

That doesn’t mean it’s all plain sailing, however, particularly as it seems the U.S. is starting to get cold feet.

In late 2019 the country threw up a hurdle to negotiations, demanding last minute changes that would see the implementation of a “safe harbour” arrangement.

As reported by Reuters, critics say such a provision would allow tech companies to decide whether they play by the new rules, or stick with existing ones.

The Japanese Deputy Prime Minister and Minister of Finance, Taro Aso, took an open swipe at the “safe harbour” proposal following the G20 meeting, telling reporters: “I told my counterparts that Japan is very concerned about the ‘safe harbour’ proposal.

“It would extremely diminish the regulatory effect of what we’re trying to do. That is a view expressed by various countries.”

Indeed, Bruno Le Maire, France’s Minister of Finance, hit out at the idea in January, telling a press conference: “The only reasonable, wise and effective solution is the international fiscal agreement proposed by the OECD. We ask our American partners to support it.”

Speaking during this weekend’s G20 meeting, Le Maire told Reuters that failure to agree on tax rules for digital business at a global level would lead to a fragmented system where potentially conflicting rules were set at a national level.

“We have to address the issue of digital companies making profits in many countries without any physical presence, which means without paying the due level of taxes,” Le Maire said.

“There is wide consensus among the G20 members on the necessity of having a new international taxation system,” he continued. 

“Let's be clear - either we have at the end of 2020 an international solution... clearly in the interest of all countries and digital companies, or there is no solution and ... then it will be up to the national taxes to enter into force.”

The row comes at a politically sensitive time for the USA and President Trump’s administration, which has railed against the proposals as “discriminatory” against US interests.

On Sunday, U.S. Treasury Secretary Steven Mnuchin said that while the country hoped to have a deal in place by the end of the year, it wouldn’t hesitate to hit back against what it perceives as discriminatory against US businesses.

“We’ve been very consistent in saying we think the digital services tax is discriminatory in nature against digital companies, and specifically a handful of U.S. companies,” Mnuchin said, according to Reuters. “The president was clear that we were proceeding with ... reciprocal tariffs.”

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