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European nations will want digital services to be included in any deal with the U.S. on corporation tax.
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Wide divergences between countries on the issue of a minimum corporate tax as proposed by U.S. Treasury Secretary Janet Yellen as well as on a Digital Services Tax make an agreement by the G20's summer deadline unlikely, despite the initial welcome the initiative has received, European officials told MNI.
France, the UK and Italy seem likely to balk at any agreement without a similar one on a Digital Services Tax, said the sources familiar with the talks, which are ongoing at a technical level within the OECD.
"In general, at G20, what has been blocking so far was the U.S. position. But things might get more difficult when discussions move to technical details at the OECD," one EU official said.
Indonesia – which holds the G20 presidency next year – is also keen to get progress on the DST and India has its own digital tax ready to go.
China, on the other hand, may not be so keen on seeing progress on either issue. The country's big tech firms may rival Amazon, Google, Apple and Facebook in terms of global reach and revenues in coming years and might even dominate the global digital services market by then.
SWISS, IRISH RESISTENCE
"On the corporate tax, China feels very strongly about sovereignty and being told what they can and can't do," another source said.
Countries like Switzerland, Singapore, Luxembourg, The Netherlands, Belgium and Ireland, which have made a business out of offering low or no tax HQ regimes to multinationals, may also seek to block the U.S. initiative.
American Treasury officials told reporters on a call earlier Wednesday there is momentum for an agreement possibly this year and it may be easier to reach a deal because the global tax does not need unanimity. The Treasury didn't immediately respond to an MNI request for comment on this story.
The window for achieving an ambitious global tax deal is fast narrowing, with U.S. mid-term elections now less than two years away and the U.S. still facing the massive task of getting its infrastructure bill approved.
One source said it had to be doubtful that the U.S. would even be in a position to present its tax reform by the July 1 deadline.
The fact that talks among officials and ministers are still confined to a virtual format, where it is notoriously harder for officials and politicians to reach informal bargains, makes the July 1 deadline seem doubly unlikely.
"There are no coffee breaks on Zoom and that is where push comes to shove in these kinds of negotiations," an official said.
One source suggested that given the time constraints it was likely that a final push for a deal could be pushed back to the October G20 summit.
"The G20 heads of state summit is in October and so they may just say, we are trying to reach an agreement here, we need a few more months, let's leave it for the October summit."