The new head of the OECD is confident about reaching a global deal on digital services tax.
Incoming OECD Secretary-General Mathias Cormann told the FT a global deal would be important to prevent individual countries imposing a “proliferation of different unilateral measures”.
Cormann said that the failure to reach a deal thus far has created a “Wild West” situation in which countries impose digital taxes that are not in line with international norms.
A more multilateral era?
Under the Trump administration, the US government imposed tariffs on EU trade in response to the EU imposition of Digital Services Tax. Analysts are cautiously optimistic of reaching consensus, as Biden has promised a more multilateral approach.
Notably, Treasury Secretary Janet Yellen has revealed that the US is no longer demanding a ‘safe harbour’ rule that would allow US companies to opt out of overseas tax.
However, European officials have cautioned that even if a global digital services tax framework is adopted soon, it could take time to be ratified and implemented at a global scale. EU policymakers have thus suggested that they might still proceed with their own digital tax framework.
Digital services tax is inevitable – but what will it look like?
The OECD’s Consumption Tax Trends 2020 report revealed that more countries appreciate that digital services are central to the new economy and an important source of taxable revenue.
Increasingly, Digital Services VAT is becoming the global norm. Digital Services VAT increasingly affects non-residents companies providing digital services to customers in global markets.
By contrast, Digital Services Taxes is a tax on revenue that generally only affects very large digital services companies.
Officials worry about the prospect of trade wars if countries continue to design and impose unilateral DST policies. Analysts are also concerned about non-level playing fields for competing businesses.
Equally, the complexity of multiple, non-coordinated DST policies will make global tax compliance even more complicated than it already is.
In addition, without a deal, there remains the potential threat of retaliatory tariffs, should countries impose unilateral DST regulations.
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