Such European countries as France, Italy and Britain are clashing with the U.S. over plans to impose new taxes on digital services provided by companies including Apple and Google.
A growing movement by foreign governments to tax U.S. tech giants that supply internet search, online shopping and social media to their citizens has quickly emerged as the largest global economic battle of 2020.
The fight pits traditional allies against one another, with European countries like France, Italy and Britain clashing with the U.S. over their plans to impose new taxes on digital services provided by companies like Amazon and Google.
At the core of the debate are fundamental questions about where economic activity in the digital age is generated, where it should be taxed and who should collect that revenue. The potential for large tax dollars has spurred governments across the world to consider new digital taxes and has even inspired lawmakers in some U.S. states, like Maryland and New York, to propose their own levies on digital trade.
This week, national leaders meeting in Davos, Switzerland, brokered a truce between the U.S. and France, which had planned to move ahead with a digital services tax.
Officials in both countries said they would pause what had been an escalating dispute in order to give international negotiators a chance to reach a global tax agreement that could halt a proliferation of digital taxes.
But the meetings, which took place at the World Economic Forum, have also brought new threats of taxation and tariff retaliation and underscored how fragile negotiations remain.
The stakes are high for governments and multinational corporations — even those outside the tech sector. The digital tax negotiations, which are being conducted through the Organization for Economic Cooperation and Development (OECD), have become entwined with efforts to reduce attempts by companies to avoid taxes by shifting profit overseas.
Last year, negotiators at the OECD, including a delegation from the Trump administration, agreed to a first-step framework that would allow countries to tax certain digitalservice providers even if they did not have physical presences inside their borders.
But U.S. Treasury Secretary Steven Mnuchin quickly surprised OECD officials with a letter requesting a change to the framework, one that would effectively allow some U.S. companies to opt out of those taxes. OECD officials pushed back and negotiators are set to meet again next week in Paris.
The discussions, which are expected to last months, could end with an agreement on a global minimum tax that all multinational companies must pay on their profit, regardless of where the profit is booked. The negotiations could also set a worldwide standard for how much tax companies must remit to certain countries based on their digital activity.
Mnuchin expressed frustration Thursday in Davos that a digital sales tax had become such a focus of discussion at the World Economic Forum. Setting a minimum tax for companies around the world, to prevent them from hiding profit in tax havens, will make a much bigger difference, he said.
“From my perspective, that is by far the more important,” he said.