Biden’s tricky balancing act on digital service tax
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Hello from Washington, where the cicada invasion has become so fierce that they are in droves appear On the weather radar.
Our main article today attempts to answer the questions I have been asked several times after the historic agreement between the G7 finance ministers this weekend: Will the United States abandon the threat of tariffs on countries with big ideas? Tax the tech giants? Honestly, the title gives you the answer. However, if you want to understand why this is the case, please continue reading.
Concession watersAt the same time, the price of air freight between the world’s two major hubs has soared.
U.S. digital service tax dilemma is far from over
Today we return to one of the classic trade explosions between Washington and, well, several other capitals including London, Paris, Rome, Vienna, Madrid, Ankara and New Delhi. Maybe we should also include Ottawa, let’s put Brussels there, why not? To be fair, there are also some frictions with Brasilia, Jakarta and Prague.
For what might the United States fight all these different countries? Of course it is digital service tax. Tired of large technology companies shifting their profits to lower tax jurisdictions, some countries (led by France) are tired of waiting for OECD negotiations to change global taxation and continue to advance their own taxation, aiming to move from similar places Squeeze more cash Google, Apple and Facebook.
You will remember that this quickly turned into a trade war, because Donald Trump’s trade adviser, Bob Lighthizer, was able to skillfully use trade enforcement mechanisms, such as the US 301 investigation procedure for unfair trade practices, to threaten the country with tariffs. , The reason is: They discriminate against American companies. Biden’s U.S. Trade Representative, Katherine Tai, put some 301 investigations aside, but continued to advance other investigations. The Office of the United States Trade Representative released a list of US$2 billion worth of goods last week. If these digital service taxes do not disappear, it is ready to impose punitive tariffs on these goods at any time.
But after the agreement reached between the G7 advanced economy groups this weekend, it includes a plan on how to tax large technology companies (by expanding the scope to include other industries), and a minimum global corporate tax of 15%-this is a A huge victory for the Biden administration-we are ready to move forward, and the United States can stop complaining, right?
Well, not so fast.
The G7 agreement is a big step forward, but these proposals still need to be discussed by G20 leaders and then discussed at the OECD in Paris.And, as far as the United States is concerned, the biggest problem is When Countries that have imposed taxes on digital services may abolish these taxes. Washington continues to insist that this needs to happen to eliminate the threat of tariffs. The United Kingdom, France and Italy all stated that they would eliminate taxation only after reaching and approving a global agreement. On the other hand, US Treasury Secretary Janet Yellen hopes to complete it immediately.
Washington gave Britain, Austria, Italy, Spain, Turkey and India about six months of probation to allow OECD negotiations to begin, which is reasonable. However, this may put the United States in a tricky position, because negotiations may take longer than this to end.
Tax experts generally believe that there are still many technical (rather than technical) details to be resolved. “We have a [headline] Interest rates without any other details, these are all important,” said Cathy Schultz of the Washington-based business roundtable. “This is where all these negotiations go-what is the basis of this tax? “Rob Hanson of the National Foreign Trade Commission agreed. “I can’t emphasize enough. .. The G7 Communiqué is a very high-level summary,” he said.
The rules need to be finalized and then agreed by the wider OECD countries. And all of this must happen before the laws of the digital service tax country are passed.
(Ironically, it takes a long time for the United States to pass Congress to pass any OECD agreement, because any change that forces companies to pay taxes where they generate profits must pass Capitol Hill as a treaty. This means a Senate vote and two rounds Voting. Two-thirds majority (we wrote about the difficulties of Congress Here Come back in February).Republicans have queue Attack their views on the deal so far.
Even if the OECD agreement is reached and approved, it does not mean that countries will not advance unilateral plans to tax US technology companies. Canada is at the G7 negotiating table, but still expresses its desire to levy its own digital service tax. The European Union also stated that its proposed digital tax will “complement” the OECD solution.
All the above circumstances make us highly doubt whether countries will abolish their digital service tax within six months and replace it with a newly formulated tax treaty agreed to by the OECD.
This puts the Biden administration facing a delicate balance between keeping foreign governments on the sidelines and pacifying domestic opposition.
The government hopes that the agreement agreed by the G7 will be passed, which means that if negotiations in Paris are still going on, the U.S. Trade Representative may have to extend the tariff suspension for a period of time. At the same time, at some point, the Biden administration will have to respond to Democrats and Republicans again. If the digital service tax does not disappear and the Biden administration does nothing about it, they will feel uneasy. Yellen Biden and Biden have time to resist these legislators, but this trade war is far from over.
The demand for air freight is currently high, and the trade body International Air Transport Association reported that cargo volumes in April increased by 12% from pre-pandemic levels. From the perspective of price trends, the demand between China and the United States is strongest. See the chart below, from Xeneta, a company that specializes in logistics data.
Analysts believe that the American people’s tight production capacity and strong spending on consumer products are the correct explanation for what is happening. “U.S. retail spending is currently so high, especially for consumer durables,” said Erik Devetak, Xeneta’s chief product officer. “This is an old story, saying that this is the reason for pushing up freight rates, but this — plus a load factor of more than 90% — is the best narrative to explain the surge in May.” Claire Jones
More bad news Global shipping. Covid-19 break out Some large ports in southern China are curbing activities. Expect more delays and rising costs. The cargo owner and logistics provider platform Project44 reported that as of June 7, the median stay at Yantian Port, a deep-water port in Shenzhen, had risen to more than two weeks.
More about tax. ProPublica dug up some previously invisible tax bureau documents to come up with this Great reading On how some of the richest people in the world have Avoided income tax. Warning: reading it may make you feel very angry. Some Irish legislators Yes Warm up to this idea The corporate tax rate is slightly higher than the current 12.5% ??tax rate.The Labor Party, the country’s second largest opposition party, supports “slight growth”, which shows Political consensus on keeping Ireland’s ultra-low taxation is breaking Facing a global agreement.
Cecilia MalmstromServed as a member of the European Commission and the European Parliament, has joined Peterson Institute for International Economics As a non-resident senior researcher.She will host Trade wind Virtual discussion series, the first will be held with the IMF president on July 21 Kristalina Georgieva. Founding host and senior researcher Annabel Gonzalez Is joining the World Trade Organization as Deputy Director-General. Amy Williams and Claire Jones