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US reaches deal on digital services tax, agrees to drop tariffs

The US has reached a deal with Austria, France, Italy, Spain and the UK on digital services taxes. Under the agreement, the European countries can maintain their digital services taxes until they establish the OECD digital services tax framework.

“We reached our agreement on DSTs in conjunction with the historic OECD global agreement that will help end the race to the bottom over multinational corporate taxation by leveling the corporate tax playing field,” US Trade Representative Katherine Tai said in a statement

Digital services taxes collected in the current period will be eligible for a credit when the OECD framework is initiated. 

Digital services taxes apply to global tech giants, such as Facebook and Google. Under the previous administration, the US imposed tariffs in retaliation for taxes on US companies. Subsequently, the US government dropped the ‘safe harbour’ rule shielding US corporations from foreign taxes.

A global deal on digital services tax

Policymakers have for some time sought global consensus on a global framework for digital services tax. 

Without multilateral consensus, countries pursued a “proliferation of different unilateral measures” leading to confusion and diplomatic tension. 

Global minimum corporate tax rate

In a milestone for global governance, G7 finance ministers recently agreed to a global minimum corporate tax rate

Following that landmark agreement, the OECD has reached an agreement on a ‘Two-Pillar Solution’ to manage tax in the digital economic age. According to the OECD, the agreement follows “years of intensive negotiations to bring the international tax system into the 21st century”. 

Pillar one of the agreement creates a framework for taxing multinational enterprises. 

Pillar two sets a global minimum tax rate for MNEs with annual revenue over €750 million.

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