The fragile consensus on how to reform corporation tax wobbled badly, but seems to have been repaired. Divisions between the US and Europe over how to proceed dominated this week’s World Economic Forum in Davos. Treasury Secretary Steven Mnuchin warned his UK counterpart that Washington might impose tariffs on cars if the UK pushed ahead with a digital services tax — following earlier US threats to put tariffs on French goods if Paris adopted its own digital levy. A truce declared between Mr Mnuchin and French finance minister Bruno Le Maire offers a chance to put talks back on track. All sides should take it.
In November, the OECD delivered new proposals for countries to have a “taxing right” over foreign-based companies, based on the proportion of sales within their territory as well as a global minimum rate. The plan would update global taxation for a world in which companies can easily shift intangible assets, such as patents or brands, into tax havens. The US, however, cooled on the idea, and in December insisted any tax had to be optional.
The threat of US tariffs on French cheeses, wine and other imports prompted a phone call between French President Emmanuel Macron and US President Donald Trump. French officials said the two leaders agreed to suspend any tariffs until the end of the year — winning more time for the EU to try to convince the US to reach a deal at the OECD. That failed to resolve the matter, however, with Mr Mnuchin issuing his warning to the UK and Mr Le Maire facing criticism over suggestions Paris had capitulated to the US.
Further talks yesterday between the French and US finance ministers agreed a text for further OECD negot-iations on a global tax that, according to Mr Le Maire, removed the word “optional” that the US had been insisting on. France agreed to suspend collecting its digital tax — though companies will start to run up liabilities.
If this signals a new basis of trust in the negotiations, it is to be welcomed. The OECD’s secretary-general, Angel Gurría, also asked countries not to pursue unilateral measures, warning of a “cacophony and mess” if many go their own way — Canada, Indonesia and others have their own plans.
Yet the resolute attitude of the UK chancellor, Sajid Javid, who told Mr Mnuchin the UK would press ahead with its digital service tax, appeared to have emboldened the French.
Britain was right not to give in to US pressure. It would be foolish to make such a big concession to the US before it even begins negotiations on a new bilateral trade deal; neither would it be sensible to establish the precedent that it can be bullied.
The prospect of unilateral measures and the pressure they provide have contributed to the multilateral progress so far. But the UK should follow France’s lead in implementing the tax but not yet collecting the revenue. Should the OECD process break down for good, then the back taxes can be collected.
The priority now is to restore momentum to multilateral efforts — starting with the next phase of negotiations in Paris next week. The OECD plan is a fair and sensible update to corporation tax rules. The taxes are not arbitrary and would grant the US the same taxing rights over, say, French luxury companies as Paris would gain over tech giants. As events this week have shown, a breakdown in the talks could trigger a transatlantic trade war — with European countries and others imposing their own unilateral taxes and Washington responding with a flurry of tariffs. That is in the interests of no one — least of all the US.
This leader has been updated to reflect news developments
