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The U.S. and several European countries are expected to announce as soon as this week the details of an agreement to end a long-running trade battle over digital taxes that ensnared the largest American tech firms including Facebook Inc. and Amazon.com Inc.
The deal will include the U.S., U.K., France, Italy, Spain and Austria, with the European countries pledging to withdraw so-called digital services taxes when a broader international pact on corporate taxation comes into force between now and 2023, according to people familiar with the matter who spoke on condition of anonymity because the talks were private.
In exchange for abolishing their national digital taxes in the future, European governments expect the U.S. to drop the threat of retaliatory tariffs, two of the people said.
European countries had imposed the levies on digital revenue of big firms as they said such companies were subject to effective rates far below their brick-and-mortar peers. In doing so, the nations also sought to put pressure on the U.S. to engage in talks to find a global solution for taxation based on profits.
The breakthrough would end more than two years of a transatlantic confrontation that overshadowed negotiations on how to share the rights to tax the world’s largest companies. Both sides have at times used the digital taxes and related tariffs to leverage the global multilateral talks, which produced an agreement earlier in October.
The Organization for Economic Cooperation and Development, which presided over the negotiations, had warned that without a deal, disputes like those between the U.S. and Europe could strip more than 1% off world economic output annually.
While neither U.S. nor European officials have publicly confirmed that retaliatory tariffs imposed by Washington over the DSTs would be eliminated, Treasury spokeswoman Alexandra LaManna said a deal “should put an end to tax and trade disputes with our European allies.”
In 2019, amid slow progress at the OECD, France was the first European country to impose a levy -- 3% -- on the digital revenues of large companies.
The U.S. responded with retaliatory tariffs against France and subsequently against others that adopted similar taxes, claiming the levies discriminated unfairly against American firms. The tariffs never took effect, however, as both sides navigated toward a negotiated resolution.
The Biden administration jumped into the wider international corporate tax talks that President Donald Trump had let languish, and has helped shepherd the deal that world leaders aim to finalize in Rome at the end of this month.
The accord will introduce a new global minimum tax rate of 15% to combat corporate profit shifting to low-tax havens, and will seek to tax the biggest multinationals based, in part, on where they do business instead of where they book profits.
The broader deal also prohibits signatory countries from imposing new digital service taxes after Oct. 8, and nudged participants to come to the agreements on rolling back existing DSTs.
It’s unclear exactly when and how the taxes will be withdrawn, although countries including France have said they will only give up their DST once the OECD deal is fully implemented. That would maintain government revenues -- France collects around 350 million euros ($408 million) a year from its tax -- and keep the pressure on Congress to approve the new rules despite opposition from leading Republicans.
Negotiators are trying to resolve additional technical issues in the transition away from national digital levies to a global tax system. The aim is also to have a system such that companies will have paid no more in DST than what they would have done if the new international rules had been in place sooner, people familiar with the matter said.
French Finance Minister Bruno Le Maire, speaking to CNBC television in Washington last week, said there could be some kind of “credit mechanism.”
“Let’s be reassured, there won’t be any over-taxation of any company,” Le Maire said.
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