The US drops tariff threat over global tax agreement

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The United States withdrew its threat of tariffs against five European countries over their digital services taxes, as part of a deal to manage the transition to a new global tax policy for large corporations. Austria, France, Britain, Spain, and Italy will get to enforce their digital taxes until the global tax agreement kicks in in 2023 as per a jointly announced plan with the US.

The countries had agreed to hold off their digital services taxes as part of a broad global tax deal, agreed on October by 136 countries. In the tax deal, the countries agree to a 15% global minimum corporate tax.

A question answered

As the tax deal came to a close, one of the major questions left unanswered was the timing and method of the digital tax withdrawals, which were largely aimed at US tech firms that include Google, Facebook, and Amazon.

According to the agreement announced on Thursday, any digital taxes the countries collect from the firms after January 2022 that exceed what they would have to pay under the new rules would be credited against the firms’ future tax liabilities in the countries in question.

Threats stopped

In exchange, the US agreed to drop the planned tariff retaliation against the five countries, which they said were discriminating against American companies. The agreement does not include two other countries (India and Turkey) that have imposed digital services taxes and face the same tariff threats.

Rishi Sunak, Britain’s finance minister, said that the deal would allow the continued levying of DST revenues, which amount to 2% of the gross revenues that digital firms collect from British customers, to continue funding vital public services.

The US will work with the five governments to ensure the implementation of the agreement and roll back existing digital services taxes.