France said a US decision to quit global talks on how to tax big digital firms such as Google, Amazon and Facebook was a “provocation”.
This comes as the European Union said it could impose taxes even if no deal was reached by the end of the year.
The latest trade row was ignited after the Washington said it was withdrawing from negotiations with European countries over new international tax rules on digital firms, saying talks had made no progress.
Nearly 140 countries are involved in the talks organised by the Organisation for Economic Cooperation and Development on the first major rewrite of global tax rules in a generation to bring them up to date for the digital era.
The talks aim to reach a deal by the end of 2020, but that deadline is now slipping out of reach with Washington’s latest move and the US presidential election in November.
Meanwhile, OECD Secretary-General Angel Gurria said that addressing the tax challenges arising from the digitalisation of the economy is long overdue.
He said that all members of the Inclusive Framework should remain engaged in the negotiation towards the goal of reaching a global solution by year end.
“Absent a multilateral solution, more countries will take unilateral measures and those that have them already may no longer continue to hold them back,” he stated.
He said this, in turn, would trigger tax disputes and, inevitably, heightened trade tensions.
“A trade war, especially at this point in time, where the world economy is going through a historical downturn, would hurt the economy, jobs and confidence even further,” he warned.
Finance Minister Bruno Le Maire said France, Britain, Italy and Spain had jointly responded today to a letter from US Treasury Secretary Steven Mnuchin announcing the pullout.
“This letter is a provocation. It’s a provocation towards all the partners at the OECD when we were centimetres away from a deal on the taxation of digital giants,” Le Maire said.
A Spanish government spokeswoman said Madrid and other European countries would not accept “any type of threat from another country” over the digital tax dispute.
European countries says tech firms pay too little tax in countries where they do business because they can shift profits around the globe with little physical infrastructure.
Washington has resisted any new unilateral taxes on Silicon Valley companies in the absence of an OECD deal.
“The European Commission wants a global solution to bring corporate taxation into the 21st century,” European Economic Commissioner Paolo Gentiloni said.
“But if that proves impossible this year, we have been clear that we will come forward with a new proposal at EU level,” he said, saying taxes could be introduced even without a global deal.
France, one of several European countries which has enacted new taxes to collect more revenue from digital companies, had agreed to suspend collection of its levy while talks were under way on a global approach.
Le Maire said France would impose its digital services tax this year, whether or not Washington returned to negotiations.
“No one can accept that the digital giants can make profits from their 450 million European clients and not pay taxes where they are,” he said.
The French tax applies a 3% levy on revenue from digital services earned in France by companies with revenues of more than €25m in France and €750m worldwide.
Washington has threatened to impose trade tariffs on French Champagne, handbags and other goods in response.
The US opened trade investigations this month into digital taxes in Britain, Italy, Spain and other countries over concerns that they unfairly target US companies.
President Donald Trump threatened this month to impose tariffs on EU cars if the bloc did not drop its tariff on American lobsters.
Efforts to reach even a limited US-EU trade deal have foundered and sources on both sides see little chance of progress with a US presidential election barely four months away.
A spokeperson for the Department of Finance here said it was too early to speculate as to what impact this recent development may have on the progress of global tax reform efforts at the OECD.
“Ireland remains convinced that globally agreed action is preferable to unilateral measures when it comes to international tax matters,” the spokeperson added.
Sorley McCaughey, Christian Aid Ireland’s Head of Policy and Advocacy, said the developments were further evidence of the cracks in a fundamentally flawed process.
“From the outset the OECD BEPS process has suffered from a democratic deficit,” he said.
“The ability of one powerful country- the US to derail the process puts a lie to the idea that this was ever an inclusive process where countries engaged on an equal footing.”
“Developing countries have long complained that they have been shoe horned into a process that did not take into account their concerns. To see the process now derailed over the concerns of one country will appear rather rum to developing countries who have long been told that countries engaged in the process as equals.”
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