Yellen Removes Obstacle to Global Corporate-Tax Deal
February 26 2021 - 1:49PM
Dow Jones News
By Richard Rubin and Paul Hannon
WASHINGTON -- The U.S. dropped a Trump administration demand in
global corporate-tax negotiations, removing one obstacle to an
agreement on adapting the tax system to the digital economy.
Treasury Secretary Janet Yellen said Friday that the U.S. would
no longer insist on a "safe harbor" under which some elements of
the tax rules would be optional. The idea, proposed in late 2019 by
her predecessor, Steven Mnuchin, drew objections from European
counterparts, though talks on how it would work never advanced very
far.
Ms. Yellen made her remarks to finance ministers of the Group of
20 advanced and emerging-market economies at a virtual meeting.
According to a Treasury official, Ms. Yellen said the U.S. would
continue to engage on both parts of the tax project being led by
the Organization for Economic Cooperation and Development: a push
to redefine where corporate income is taxed and a parallel effort
to impose minimum taxes.
Ms. Yellen's decision doesn't guarantee that a deal will be
reached. The global talks have moved in fits and starts for years,
driven by European countries' frustrations that U.S. technology
companies such as Facebook Inc. and Alphabet Inc. have such a large
presence in their economies but pay relatively little in corporate
taxes.
Corporate profits are taxed where value is created, not where
customers are located. Negotiators have sought to give countries
where international companies operate more power to tax them. In
the absence of a deal, some have imposed digital-service taxes that
are levies on the companies' revenue from those jurisdictions.
European governments have shown little willingness to withdraw
those levies, arguing that the rise in profits recorded by
digital-services companies during the pandemic underlines the need
for a new approach to taxation. Many believe the pandemic has
accelerated a digitization of the global economy and would deprive
them of tax revenues that will be needed to repair their finances
after the pandemic is contained.
Without a deal, they say, technology businesses will face a
bewildering array of national taxes based on slightly different
ways of calculating profits -- and the possibility that profits
could be taxed multiple times. Several of those digital-services
taxes are already in effect, for instance in France.
"It would be a big mistake if there were just national
solutions," German Finance Minister Olaf Scholz told a meeting of
the 137 countries seeking a deal at their most recent meeting late
last month.
U.S. officials -- both Republicans and Democrats -- have balked
at those unilateral taxes, calling them discriminatory and unfair.
The Trump administration retaliated with tariffs, which haven't
taken effect yet.The U.S. sees a global deal as a path to get those
levies removed.
Big U.S. technology companies have likewise opposed the
patchwork of one-time national taxes on digital services, which
they contend unfairly target them. They have urged governments to
strike a deal at the OECD, the Paris-based group of advanced
economies.
"We are optimistic about reaching consensus on global tax reform
for the digital age this year," said Christian Borggreen, vice
president and head of the Brussels office at the Computer &
Communications Industry Association, which represents companies
including Amazon.com Inc. and Facebook. Mr. Borggreen said Ms.
Yellen's comments were encouraging.
The OECD is guiding negotiations among a group of 139 countries
that is known as the Inclusive Framework. Their self-imposed
deadline for finding an international agreement is June. The
initial deadline, which was the end of 2020, was extended when the
pandemic struck.
Mr. Mnuchin proposed the safe-harbor idea in December 2019,
suggesting that a system that is optional would be easier for
Congress and U.S. businesses to accept. Ms. Yellen, until Friday,
had said little about the Biden administration's views on these
subjects.
--Kate Davidson and Sam Schechner contributed to this
article.
Write to Richard Rubin at richard.rubin@wsj.com and Paul Hannon
at paul.hannon@wsj.com
(END) Dow Jones Newswires
February 26, 2021 13:34 ET (18:34 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.