OECD Digital Tax Talk Prospects Overshadowed by ‘US Fatigue’

Increasing acrimony against the Trump administration over its trade, defense, and tax policies will make it difficult for countries to agree on how to tax big tech companies.

The US has called for negotiators to start from zero on a decade-long project aimed at stopping digital taxes on its tech companies like Meta Platforms Inc., Alphabet Inc., and Amazon.com Inc. The project aimed to reallocate a fraction of the profits from some of the largest companies in the world to the countries where sales are made.

The US’s top delegate to the OECD, Rebecca Burch, said in recent remarks at the US Chamber of Commerce that the US is currently in a position to listen to countries’ feedback on the issue.

“Let’s challenge the assumptions, let’s challenge whether the problem we thought we were solving for exists—is different, is bigger, is smaller,” she said.

But that call is unlikely to fly with countries that aren’t willing to remove existing digital taxes or wait to impose new ones, especially when budgets are tight and taxing rich, foreign companies is more politically viable.

Delegates from over 140 countries are poised to meet at the Organization for Economic Cooperation and Development in the coming months for what the US has described as “constructive dialogue” about taxing the digital economy.

The divisions are stark: Some developed and many developing nations say large digital companies are making money off their citizens without paying a “fair share” on that income. They want rights to tax companies based on where users or data are located.

The US and its companies have repeatedly argued that this method of revenue-based taxation is a politically motivated money grab that’s inconsistent with existing international tax standards. Similar tensions are at play in United Nations negotiations on a multilateral tax treaty.

Countries “all want taxing rights for themselves,” said Michael Plowgian, a top US negotiator at the OECD during the Biden administration and current partner at KPMG. “And so it’s inherent that you’re going to have conflict in that.”

On top of taxing-rights squabbles, it’s unlikely countries—especially in the EU—will want to engage with a US administration they see as bullying and untrustworthy.

“It is clear there is a high amount of ‘US fatigue’ both within the EU and globally” said Tove Maria Ryding, policy and advocacy manager for tax justice at Eurodad, the European Network on Debt and Development. “It has only become more like unlikely that the US will ever be truly willing to cooperate.”

Instead, Poland is pushing ahead with its own digital tax, and Germany is preparing one as well. Countries that already impose digital taxes, including the UK, France, Spain, Italy, and Austria, will likely retain them without a multilateral solution.

Publicly, the EU itself is still willing to engage.

“A global agreement is clearly preferable to a patchwork of national measures,” said EU tax chief Wopke Hoekstra.

But that only works if goodwill is reciprocated.

President Donald Trump has just opened a spate of new investigations under Section 301 of the 1974 Trade Act targeting the EU, Japan, Singapore, Vietnam, Malaysia, Mexico, and other close trading partners.

At the moment, trade outweighs tax, said Will Morris, global tax policy leader at PwC.

“So, if something goes wrong in the trade space, for example, the EU-US trade deal runs into trouble, then the chances of these digital tax discussions advancing would be greatly reduced.”

Stalled Talks

Work first began on a multilateral solution, which eventually became known as Pillar One of a 2021 international tax pact, after some of the US’s closest allies, including the UK, France, and Italy, imposed DSTs on American companies in 2019.

For the US, the logic of engaging in a multilateral treaty was to stop more countries from imposing new taxes, which also created a compliance headache for companies even if their revenue wasn’t very high, explained Quentin Parrinello, policy director at the International Tax Observatory, a think tank

“The US wanted to minimize compliance costs. Others wanted taxing rights,” he said.

During the Biden administration, members of the Inclusive Framework--delegates from countries involved in the global tax talks—drafted an almost-1,000-page multilateral treaty that’s part of Pillar One.

This treaty, if enacted, would have removed current and future digital services taxes.

But progress on a final treaty draft came to a screeching halt after the US said it would only sign the document if all of the Inclusive Framework members agreed to make another component of Pillar One, called Amount B, mandatory. A handful of countries including India, Australia, and Canada refused, and the negotiations were never revived.

Amount B is a simplified framework companies and countries can use to value related-party marketing and distribution transactions of tangible goods.

The negotiations were put off further when Trump was elected again in 2024, and his administration came out aggressively against countries, including in the EU, that impose digital taxes on US companies.

Starting Again

Hoekstra, the EU tax chief, is optimistic that the stalled talks can be revived.

“We want to give the global process a real chance. In that context, the United States’ intention to engage in constructive dialogue is a positive signal,” he said.

But talks haven’t yet started, and it is unclear what the goal—if any—will be.

Some suggest the EU should bring back its own digital tax, first proposed in 2018 but shelved to accommodate the talks at the OECD.

“We have refrained from establishing a digital services tax until this day, but given the prospects of the ongoing negotiations, one must admit an international solution is not always feasible,” said Bruno Goncalves, a Portuguese representative in the European Parliament.

The EU could continue talks with the US, he said. The EU tax “would simply act as a backstop that ensures the EU’s word and legislative autonomy is to be taken seriously.”