US-EU trade war feared after Washington quits digital tax talks

The European Union said on Thursday it could impose taxes on digital giants such as Google, Amazon and Facebook even without a global agreement by the year-end, after Washington quit talks and stoked fears of a new trade war.

The latest transatlantic row was ignited when the United States said on Wednesday 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 (OECD) on the first major rewrite of global tax rules in a generation to bring them up to date for the digital era.

“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,” OECD Secretary-General Angel Gurria said, urging all sides to reach a deal.

The talks aim to reach an agreement 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.

Finance Minister Bruno Le Maire said France, Britain, Italy and Spain had jointly responded on Thursday 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 told France Inter radio.

Spain’s government said it and other European nations would not accept “any type of threat from another country” over the digital tax. Italy said it was committed to a global deal.

European countries say tech firms pay too little tax in countries where they do business because they can shift profits around the globe. Washington has resisted new unilateral taxes on Silicon Valley companies in the absence of an OECD deal.

Champagne and handbags

“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 deal.

France, one of several European countries which have enacted new taxes, 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 percent levy on revenue from digital services earned in France by companies with revenues of more than 25 million euros ($28m) in France and 750 million euros ($840m) 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 finance ministry spokesperson in Britain, which is seeking trade deals with Brussels and Washington after it left the EU, said London’s “preference is for a global solution to the tax challenges posed by digitalisation”.

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