The OECD target for the end of 2020 has not been met, as the international consensus on the concept of transforming the global tax system, still referred to as the two pillars, remains to be seen. With the inauguration of the new US president, the process could gain momentum again, but some European nation-states have also moved in the direction of independent efforts again. France is at the forefront of this, having imposed a previously suspended French digital tax at the end of 2020.
2020 has proven to be an eventful year for digital taxes.
France and the United States got into conflict in January when France introduced unilateral provisions at the domestic level to tax the biggest players in the digital sector. In response to the rulings, the United States vehemently threatened the opposition with criminal charges, forcing France to suspend digital taxes until the end of the year, forcing it to back down. According to the OECD’s plans at the time, an agreement on taxing digital business models was also supposed to be reached by the end of the year. However, 2020 ended without the expected international consensus.
On the other hand, France imposed its digital taxes on itself without further international negotiations.
The decisive step for the French may have also been given impetus by the resignation of the Trump administration, which has rejected self-imposed digital taxes to the maximum. Meanwhile, similar taxes have been imposed in many countries (such as Italy and the United Kingdom) in parallel with the French digital tax. These steps put severe pressure on the United States and it was not clear until January 2021 whether the United States would impose a suspended penalty of 25 percent on some French imports.
Which, according to some estimates, would hit the affected sectors to reach $ 1.3 billion a year.
However, according to official communications, the United States is waiting for the time being. A lengthy response will give Washington an opportunity to speak with one voice against all digital taxes imposed.
America’s prolonged response could benefit from an international consensus on digital taxation, which is also in the United States’ interest.
– said Ferenc Bukzak, partner of Deloitte’s tax department.
The final decision could be affected by a number of factors, most notably the installation of the new administration led by Joe Biden. A less rhetorical approach to trade policy is to be expected, however, unilaterally introduced digital taxes remain against US interests, so the distancing from them is likely to continue in the future. Compounding the situation is the fact that the recently installed US president is known to enjoy the support of Silicon Valley tech companies.
Interestingly, in addition to the digital tax introduced by one, France attacked the digital sector in other ways.
In the case of Valueclick, a US-based internet marketing company, in December 2020 the French Supreme Court ruled to tax the company’s profits from France. With this unexpected move, the French court departed from its previous case law and followed a stricter legal interpretation in its interpretation of the related double taxation agreement compared to its previous practice.
According to the latest OECD plans, the revised recommendation will be published by summer 2021. Meanwhile, work is underway at the OECD level to agree on the details of the drafts. Recently, the relevant working groups met on January 14-15. However, adopting consolidated and final plans during this narrow half of the year remains an ambitious goal that, if not achieved, could lead to the outbreak of trade disputes.