Janet Yellen urges EU to ditch plans for digital service tax on large tech companies

US treasury secretary heads to Brussels after G20 meeting backs G7's historic tax deal

US Treasury Secretary Janet Yellen at the G20 meeting in Venice. G20 finance ministers backed a historic deal to overhaul the way multinational companies are taxed. AFP

US Treasury Secretary Janet Yellen is set to urge EU officials to drop plans for a digital tax on large technology companies after G20 countries agreed on global tax reforms.

Ms Yellen is in Brussels early this week after the G20 gathering of finance ministers in Venice at the weekend that resulted in them backing a historic tax deal reached by the G7 last month for multinationals to pay their “fair share” of tax around the world.

She will raise her concerns at a meeting with eurozone finance ministers on Monday, in an indication that the US is ramping up efforts to stop the economic bloc from proceeding with plans for a digital service tax.

“The agreement that we have reached in the OECD framework discussion calls on countries to agree to dismantle existing digital taxes that the US has regarded as discriminatory and to refrain from erecting similar measures in the future,” said Ms Yellen.

“It is really up to the European Commission and the members of the EU to decide how to proceed,” she said. “But those countries have agreed to avoid putting in place in the future and to dismantle taxes that are discriminatory against US firms."

More than 130 countries have joined a two-pillar OECD plan backing a global minimum tax regime to reform international tax rules.

The deal is designed to stop major corporations from moving to low-tax jurisdictions and to establish a fairer system for distributing the tax rights on multinationals, based on where they operate instead of where they are headquartered.

The latter component also includes an agreement to end so-called digital services taxes that several European countries have introduced to take aim at the revenue of large technology companies such as Amazon, Alphabet’s Google and Facebook.

While EU officials have yet to finalise their plan for the bloc-wide levy, they said its name is misleading and that it would not qualify as a digital services tax.

“I really think we can fix the issue; we can alleviate the difficulties,” French Finance Minister Bruno Le Maire said at the weekend. “There are solutions and I am sure that the European Commission will do its best efforts to find solutions with the American administration.”

However, media reports on Monday indicated that Brussels will delay its plans for its digital service tax until autumn.

Ms Yellen, along with her counterparts from Germany and France expressed confidence at the weekend that the proposed global tax pact can overcome political obstacles and be finalised in October.

She said she was “very optimistic” that the US Congress would pass legislation this autumn needed to enforce the part of the deal that calls for a global minimum rate that ensures multinationals pay tax of at least 15 per cent on profit in each country in which they operate.

Ms Yellen said she hoped that Congress would address the portion of the pact dealing with the redistribution of tax rights as soon as spring of 2022.

European leaders face their own challenges in convincing the bloc to adopt the agreement, with Ireland, Hungary and Estonia refusing to sign up as they are opposed to the effective minimum tax of 15 per cent.

Ms Yellen will meet Paschal Donohoe, finance minister of Ireland, while in Brussels. Earlier this month Mr Donohoe said his country is not yet ready to agree to a global minimum tax rate, although he intends to hold a public consultation on the draft agreement.