Riyadh, Saudi Arabia – Top economic leaders around the world warned Saturday that an international tax war between the United States and Europe poses a new threat to the global economy if there is no solution this year.
After a two-year economic collapse of the trade war between the United States and China, the finance minister and other senior officials at a meeting of the 20-party group in Riyadh expressed doubts about foreign governments’ plans to impose new taxes on American technology companies. If a deal proves unfavorable in the coming months, European countries will start levying tariffs, which will likely result in retaliatory tariffs from the United States.
“Today’s trade tensions will look like they are not so serious as the consequences of anything like this,” said Angel Guria, secretary-general of the Organization for Economic Co-operation and Development, in an interview with the G20-facing organization. Saturday. “There is cacophony, trade tensions that will follow regularly and then growth will have an impact”
A number of European countries, led by France, are carrying digital service tariffs, which could hurt American companies like Amazon, Google and Facebook. Italy, Spain, Austria and the United Kingdom all together have plans for a digital services tax, which determines which income tax to consider based on whether the company has a physical presence based on the online activities it does in these countries.
OECD Efforts have been made to expand the discriminatory tax system around the world and have been leading the discussion for international maintenance over the past one year which will allow countries to impose taxes on certain digital service providers even if they do not have physical activity within their borders.
Negotiators set a year-end deadline for a contract broker to set international standards for how and where they can be deployed online. There is also talk of whether global minimum tariffs will be imposed on multinational corporations to discourage companies from lowering their tax bills in low-tax countries such as Ireland and Bermuda.
The United States of America, including the technology industry, is keen to prevent the spread of new digital taxes around the world and emphasizes the adoption of a global tax system operated by all O.E.C.D and countries.
But the talks were threatened late last year when Treasury Secretary Steven Mnuchin called on the OECD. The United States wanted the American companies to basically avoid some taxes
Some administration officials have privately expressed concern that the global minimum tax could discourage countries from further reducing the corporate tax rate, as the United States did in the 21st. These officials argue, will make their economy more attractive to global investment and support agencies. Other economists say that low-cost competition has encouraged companies to at least place profit margins on paper to move tax shelters.
The taxation of digital services in the United States is relatively low, but American companies are apprehensive that these tariffs may extend to areas beyond technology. OECD A recent analysis by Census shows that changes to international tax considerations will raise corporate taxes worldwide by nearly $ 100 billion.
The taxes have come in the wake of President Trump’s sudden criticism of Europe’s attempt to collect more taxes from American companies. Last year, Mr Trump said that the United States would press and retaliate against France’s digital tax Fees up to 100 percent on French products such as wine, cheese and handbags. The United States agreed to delay the tariff last month, and France agreed to delay tax collection in the hope that there could be a more global deal.
European finance ministers expressed urgency to reach an agreement on Saturday, hoping to find common ground with the US and avoid wider economic conflict.
“Next year is coming soon,” said German Finance Minister Olaf Scholz. “No time to wait for elections.”
But major obstacles remain, and fierce opposition to any plan that could give American companies a chance to get out of tax was clear.
“Obviously, any kind of alphabetical solution should be avoided,” said French Finance Minister Bruno Lemire. “I don’t know of any non-governmental organization that would choose to collect taxes rather than pay taxes.”
Mr Munuchin hoped that such a complex deal could be reached so quickly.
“We are dealing with some complex international tax issues,” Mr Munuchin said during a panel discussion at the Ritz-Carlton Hotel. “In the United States, this may require congressional approval, depending on what the solution is.”
Mr Mnuchin reiterated his views that he believes European digital services taxes have been “discriminatory” but said he was committed to continuing the multilateral process so that companies could have clarity on taxation in the growing digital economy.
The Treasury Secretary described the proposal as a “so-called” safe harbor system so taxpayers would agree to pay more in return for a more secure stay on the bill, opposing the proposal. .
Failure to reach an agreement through digital tax or worldwide minimum tax can disrupt the entire package. Other countries’ finance ministers have made it clear to Trump administration officials that a Larger nations of countries will not agree to an agreement that allows some large American companies to effectively choose their preferred tariffs to reduce their global liability.
But the administration faces competitive pressure from home-based businesses and lawmakers. Many technology companies, some multinational companies are eager for a deal that will remove the complexities of complying with different digital service tariffs in different countries. Other companies fear that the deal will increase their taxes unexpectedly.
Any deal may require approval by the Senate, where approval is difficult on any occasion, but more so if a huge group of powerful corporations oppose it.
Still, other countries have pressured the Trump administration to abandon its so-called “safe haven” claims and take a more proactive role in moving the congressional debate to the start of a finance meeting this weekend.
Mr Trump’s uncertainty about a trade war with China and the disruption of the global supply chain caused by American tariffs have led to a global economy emerging from a year of transparent development around the world. Although economists have predicted a return this year, in spite of easing trade tensions, the outbreak of coronavirus in China has introduced a new variable that threatens to slow output.
Christina Georgiova, managing director of the International Monetary Fund, says currently she thinks the virus can have a V-shaped impact on the Chinese economy, causing a sharp decline in growth and then recovering quickly with modest spillover to other regions of the world. However, he acknowledged that the path of the virus was not clear
“We recognize that other situations can be significantly more effective,” Ms. Georgiwa said at a dinner at the International Diner’s Institute of Sciences in Riyadh.
IMF Its forecast for China’s economic growth on Saturday was 8.6 percentage points this year. Down the percentage, and reduced its global growth outlook by 6.5 percentage points to 6.2 percent.
Tax experts who have been observing the issues discourage the possibility of reaching a larger agreement by the end of the year because of the complex internal politics involved in dealing with the country.
“The OECD The process hangs with a thread, and the consequences of failure are overwhelming by the European sovereigns, “said Itai Greenberg, an international tax policy professor at Georgetown University Law Center.
If negotiations fail and European countries go ahead with their digital taxes, Mr Greenberg says the US response will be strong, especially if Trump is re-elected in November.
“There is a high risk that the OECD The process is about to be disrupted and this is what led the building bipartisan United States to be interested in what the retaliatory system would be, “he said.
On Saturday, Mr Manuchin proposed an alternative to avoid the national consequences.
“If everyone accepts the proposal from the United States of America, I have 100 percent confidence that we will do it,” Mr. Mnuchin said, calling for some laughs from his opponent.
Alan Rapoport reports from Riyadh in Saudi Arabia and Jim Tankerley from Washington.