US reaches agreement to end European digital taxes

The US Treasury Department on Thursday announced reaching a compromise with five European countries after a dispute over taxes on American tech giants. 

The digital services taxes have primarily affected large US corporations, such as Google and Facebook.

Washington had called for abolishing those taxes, saying they were unfairly targeting US tech giants for tax practices that European companies also use.

Tech companies have backed Washington's stance. They prefer that countries withdraw individual digital services taxes in return for the right to tax a part of their earnings under a new global corporate tax scheme.

What is the compromise? 

The US had threatened France, Austria, Italy, Spain and Britain with punitive tariffs after they introduced digital services taxes. 

The duties were never implemented as countries sought to reach a deal first. As part of the agreement announced Thursday, the US said it would not impose them. 

Also under the joint agreement, the five countries will end taxes on Big Tech companies once the global minimum corporate tax deal takes effect. 

In the meantime, any levies paid for the digital services tax will be credited to future tax bills.

Washington had argued for the immediate withdrawal of the digital taxes. However, the five European countries preferred to wait until the new tax deal was implemented.

"This compromise represents a pragmatic solution," the countries said in a joint statement.

What is the global minimum corporate tax?

Earlier this month, nearly 140 countries reached a deal on a 15% minimum corporate tax under the auspices of the Organization for Economic Co-operation and Development (OECD).

The US had proposed the plan to stop tax havens from competing to attract major companies.

The rate would affect fewer than 10,000 multinational companies, those with an annual turnover of more than €750 million ($890 million).

It is expected to come into effect in 2023.

What has been the reaction?

Officials have hailed Thursday's deal.

"Good news! I welcome today's agreement," EU Trade Commissioner Valdis Dombrovskis said on Twitter. "It takes us another step forward in cooperating on corporate tax following the landmark global deal at @OECD." 

British Finance Minister Rishi Sunak said the deal provides a period of transition for the country's digital services tax.

"This agreement means that our Digital Services Tax is protected as we move to 2023, so its revenue can continue to fund vital public services," he said in a statement.

The US-based Computer & Communications Industry Association, which has long called for abolishing unilateral digital taxes, also welcomed the deal.

"It is encouraging that the new consensus on global tax reform already appears to be reducing international tax and trade tensions," CCIA President Matt Schruers said in a statement.

In response to a DW question about Thursday's announcement, Facebook reiterated a previous statement that said it welcomed international consensus.

"Facebook has long called for reform of the global tax rules, and we recognise this could mean paying more tax, and in different places," Nick Clegg, Facebook's vice president for global affairs, said last week about the global corporate tax scheme. 

"The tax system needs to command public confidence, while giving certainty and stability to businesses. We are pleased to see an emerging international consensus."  

fb/aw (AFP, dpa)