The U.S. hasn’t backed away from its call to make part of the OECD’s global tax rewrite something companies can elect into—but the idea won’t be called “optional” in OECD negotiations, a Treasury official said.
“The U.S. has not changed its position on this issue,” Chip Harter, deputy assistant secretary for international tax affairs at the Treasury Department, said at a D.C. Bar event in Washington Thursday. “We still believe that for any multilateral agreement to be useful, the U.S. needs to be able to actually implement it through Hill action, so we continue to explore permutations that would facilitate that process.”
Harter appeared to contradict French Finance Minister Bruno Le Maire, who said earlier in the day, “The optional aspect is no longer on the table.”
The Organization for Economic Cooperation and Development is trying to get nearly 140 countries to agree this year to a plan to rewrite global tax rules and agreements. The effort is driven by concerns that multinational companies—especially big tech—aren’t paying enough tax in the countries where they have users or consumers. Countries, including France, have started implementing unilateral taxes on large tech companies’ digital revenues while they wait for international agreement on an OECD solution.
Treasury Secretary Steven Mnuchin proposed in December that part of the OECD plan be a “safe harbor” companies could choose to have apply to them.
Mnuchin objects to the U.S. proposal being referred to as an “optional” tax, and wants it to be discussed as a “safe harbor proposal” instead, Harter said.
“As we proceed at the OECD we will not use the word ‘optional,’ we will use the word ‘safe harbor implementation,’” he told reporters at the event.
The safe harbor idea will be part of the document that countries consider when they meet next week, Harter said.
It is being presented as a “design feature that will be decided upon later in the process,” probably to be addressed over the summer, he said. The OECD is still working on many key design features of the plan.
Opting into Pillar One
The U.S. is proposing that companies be able to choose whether “Pillar One” of the project would apply to them.
Pillar One seeks to give more taxing rights to the market jurisdictions where companies have users or consumers through new rules on nexus—the threshold for taxable presence—and profit reallocation. It also aims to simplify existing rules and agreements that determine how much tax a company pays where in order to reduce disputes between tax authorities and countries, and build stronger dispute resolution mechanisms to ensure those disagreements are dealt with more quickly and efficiently.
A company that opted into the Pillar One safe harbor the U.S. is proposing would escape unilateral revenue taxes like France’s digital services tax, and benefit from the easier administration of a more formulaic approach to allocating its income and stronger dispute resolution mechanisms, Harter said.
Once the design details are fully worked out, “we might have a lot of takers,” especially digital companies that would otherwise face digital taxes, he said.
It’s unlikely that the growing number of countries following France’s lead and imposing their own unilateral digital taxes would all agree to withdraw them “in exchange for an elective regime,” he said.
“But what we would be doing is creating an alternative under which multinationals could get into the Pillar One regime instead,” he added.
Earlier on Jan. 23, Le Maire said at the World Economic Forum in Davos, Switzerland that the U.S. and France had worked out a digital tax agreement.
The U.S. was on the brink of imposing tariffs on French imports such as champagne over France’s 3% tax on digital revenues, which the U.S. argued was unfairly aimed at American tech giants.
Le Maire said the two countries had agreed that France wouldn’t collect the tax in 2020, and the U.S. would hold off on tariffs, while the two sides worked toward international agreement at the OECD.