Supply Lines: The digital tax divide

Supply Lines
Bloomberg

A disagreement over how to tax multinational tech giants like Google and Facebook entered a high-risk phase as international negotiators said they won't find a peaceable solution this year.

Years-long talks at the Organization for Economic Cooperation and Development had aimed to agree on new tax rules for the digital age by the end of 2020. That would have allowed the U.S. and Europe to back off from threats of tariffs and unilateral levies they have prepared to unleash at the end of December and in early January.

Now the OECD says it is working for a solution by mid-2021.

"Without a global, consensus-based solution, the risk of further uncoordinated, unilateral measures is real, and growing by the day," said OECD Secretary-General Angel Gurría. "It is imperative that we take this work across the finish line. Failure would risk tax wars turning into trade wars at a time when the global economy is already suffering enormously."

According to the Paris-based organization, which acts as secretariat for the 137 countries negotiating tax rules, a global trade war triggered by no agreement and a proliferation of national taxes could reduce global GDP by 1% annually.

Yet the chances of agreement are clouded in uncertainty. The main dispute is between the U.S. and European countries over what kind of business activity should fall in the scope of new rules on where companies pay tax on profits. Addressing that will be impossible before the U.S. presidential election Nov. 3, and may be difficult thereafter as Republicans and Democrats have expressed reservations about singling out digital companies.

Officials at the OECD see reasons for optimism. They point out that both political parties in the U.S. back the negotiations and note that there is a groundswell of global public support to find fairer taxation of global tech companies beyond tit-for-tat measures.

"The work we are presenting today is an expression of an ultimate, higher, loftier political intention to find a solution to these very important challenges," Gurria said.

William Horobin in Paris

Charted Territory

China will take part in a World Health Organization-backed effort to provide a coronavirus vaccine to developing nations, filling a void in global health leadership after U.S. President Donald Trump spurned the program.

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On the Bloomberg Terminal

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  • Click HERE for automated stories about supply chains.
  • See BNEF for BloombergNEF's analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

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