G20 reaffirms tax deal while EU delays digital levy, US eyes legislation

By Doug Connolly, MNE Tax

The communique issued by the G20 finance ministers at the conclusion of their July 9–10 meeting did not break substantial new ground in international tax talks, but the discussions seemed to help clear a hurdle in helping to induce a pause in the EU’s digital levy plans that threatened negotiations.

Meanwhile, in the US, Treasury Secretary Janet Yellen sees a two-step plan for legislation implementing the global tax overhaul, starting with a reconciliation bill this fall.

The G20 communique endorsed in broad terms the July 1 statement issued by the OECD/G20 “Inclusive Framework” with respect to adopting a global minimum tax of at least 15% and new rules on allocating taxing rights. The communique also called for a detailed implementation plan to be developed before the next G20 finance ministers’ meeting in October, and it invited Inclusive Framework members that have not joined the agreement to do so.  

The Inclusive Framework’s international tax reform statement also gained one additional supporting jurisdiction over the weekend. The OECD announcing on July 9 that Saint Vincent and the Grenadines has joined, increasing the total number of supporting jurisdictions to 132. Seven Inclusive Framework holdouts remain: Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, and Sri Lanka.

EU digital levy, holdouts

Regarding the EU’s planned digital levy, European Commission spokesperson Daniel Ferrie told reporters July 12 that the Commission has decided to “put on hold” its work on the proposed tax, according to reports in DW News and elsewhere. The announcement followed statements by European Economy Commissioner Paolo Gentiloni over the weekend – in reference to the timing of the digital levy – that the EU’s priority is implementing the OECD/G20 tax deal.

The digital levy proposal was anticipated to be announced July 20, after an initial one-week delay. The proposed levy is expected to impose a 0.3% tax on goods and services sold online by companies operating in the EU with turnover of at least EUR 50 million (USD 59 million).

While the EU has contended that the digital levy is outside the scope of the OECD/G20 talks, it has been a political sticking point for the US.

Asked about the EU’s proposed digital levy following the G20 meetings, Yellen stopped short of expressly stating that it was necessary for the EU to abandon its digital levy plans altogether, noting, “it’s really up to the European Commission and the members of the European Union to decide how to proceed.” However, she added, “those countries have agreed to avoid putting in place in the future, and to dismantle, taxes that are discriminatory against US firms.”

The digital levy is not the EU’s only hurdle towards achieving the international tax overhaul proposed in the Inclusive Framework statement. The EU also has three member states that do not currently support the plan: Estonia, Hungary, and Ireland.

Yellen suggested that she and some of her EU counterparts are continuing discussions with these countries, while hinting at potential compromise. “In some cases, there are very specific technical issues that it may, indeed, be possible to address, and, where that’s possible, I know all of us will be working in the coming months to do that and to bring those countries on board.”

US legislation

Yellen anticipates US lawmakers will take up the “Pillar Two” global minimum tax on a partisan basis, using the budget reconciliation process. “We’re hoping to have incorporated in the coming budget resolution and reconciliation bill the changes that are necessary to put it into effect,” she said in a July 11 press conference.

Pillar One, regarding reallocating taxing rights for a portion of the largest multinationals’ profits, “will be on a slightly slower track,” Yellen added. The Biden Administration will figure out necessary steps for implementation of Pillar One after remaining details have been negotiated, “maybe … in the spring of 2022.”