US lifts stumbling block to global digital tax deal

U.S. Treasury Secretary Janet Yellen told G20 finance ministers that Washington would drop a contentious part of its proposed reform of global digital tax rules that had been the main stumbling block to a deal.

The move could unblock long-stalled multilateral negotiations at the OECD, which struggled to make progress after the Trump administration first insisted on measuring the “safe harbor” at the end of the year. 2019. This provision would have allowed tech companies to abide by any agreement on a voluntary agreement. base and was strongly opposed by several European countries.

Yellen’s announcement marks an early shift in the Biden administration’s international economic policy that could herald an improvement in transatlantic relations, following tensions of the past four years with Donald Trump in the White House.

Yellen told a meeting of G20 finance ministers on Friday that the United States “is no longer advocating the implementation of the Safe Harbor,” a US Treasury official told the Financial Times.

The United States “will be firmly committed to addressing the two pillars of the OECD project, the fiscal challenges of digitization and a robust global minimum tax,” the official said.

Italian Finance Minister Daniele Franco, who co-chaired the meeting, told a press conference afterwards that the G20 aimed to reach a solution by “mid-2021”.

“The new position taken by the US government is very important,” he said. “There was a dead end. Secretary Yellen has dropped the insistence on so-called “safe harbor” measures. . . we think that will facilitate an agreement. “

Another official close to international tax negotiations said the United States “wants a two-pillar deal [of the proposals] by July. . . the next few weeks will be critical but the momentum has never been so positive ”.

Olaf Scholz, Germany’s finance minister, called Yellen’s decision “a big step forward on the road to an agreement between the participating states by the summer”. An EU official said it was “a very encouraging development”.

The grim prospects for a multilateral digital tax deal under the Trump administration have led a number of countries, mainly in Europe, to introduce or consider their own direct debits on big tech companies, in an effort to keep them from paying little or no tax on their sales.

Washington opposed the tax measures as unilateral and discriminatory against Silicon Valley, making the dispute one of the biggest sources of transatlantic economic and trade tensions.

However, despite renewed hopes for an agreement, there is still a long way to go before a new global regime can be introduced. Not only will an agreement have to be finalized, but in the case of the United States, it will be must be approved by Congress, where changes in tax policy can be very controversial.

Yellen’s break with the Trump administration’s stance on the digital tax came a day after it also dropped Washington’s objections to new financial support for low-income countries through an allocation of Special Drawing Rights (SDRs), the IMF’s reserve currency.

The last time the IMF allocated a new batch of SDRs was in 2009 during the global financial crisis.

Financial aid is widely supported by G20 countries, so Washington’s move could pave the way for $ 500 billion to support the injection into the global economy. However, the detail has yet to be worked out, with the United States wanting SDR allocations from advanced economies to be passed on to low-income countries that are in greater need of financial assistance.

Kristalina Georgieva, Managing Director of the IMF, said on Friday that she was “very encouraged by the growing support” for a new SDR allocation “to increase the reserves of all members in a transparent and accountable manner” and to provide “a mechanism extra to allow our richest members to support low-income countries by on-lending part of their SDRs ”.

Additional reporting by Guy Chazan in Berlin

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