US Halts Digital Tax Talks to Pressure Europe... Mnuchin Says "Discussion at Deadlock"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The Donald Trump administration in the United States has once again started pressuring Europe over the digital tax imposed on the sales of IT companies. After talks with Europe on the digital tax reached a 'deadlock' and negotiations were suspended, the U.S. threatened again to impose retaliatory tariffs.

According to Bloomberg and other sources on the 17th (local time), Robert Lighthizer, U.S. Trade Representative (USTR), appeared before the House Ways and Means Committee and said, "There has been no progress in the talks, and before they (Europe) backed out, (Steven Mnuchin) the Treasury Secretary said he would no longer participate in the negotiations." He expressed dissatisfaction toward Europe, saying, "We see that many countries have decided to impose taxes on companies as the easiest way to increase revenue," and "This is happening to our (U.S.) companies." He added, "The United States will not allow this situation to occur."

Lighthizer's remarks came as news broke that Secretary Mnuchin conveyed to European countries that he would not engage in negotiations for the time being. The Wall Street Journal (WSJ) and others, citing sources, reported that on the 12th, Mnuchin sent letters to four European countries? the United Kingdom, France, Italy, and Spain?stating that digital tax negotiations were "at a deadlock" and expressing his intention to suspend negotiations. In the letter to the finance ministers of these countries, Mnuchin wrote, "Focusing on difficult negotiations distracts from other important matters," and "Now is the time for governments to focus on economic issues arising from the novel coronavirus (COVID-19)," suggesting resuming negotiations at the end of the year.

However, Mnuchin still opposed the imposition of digital taxes or similar measures, adding, "If a decision is made to introduce such taxes, the United States will take appropriate reciprocal measures." Although the suspension of negotiations was officially attributed to COVID-19 recovery efforts, it is interpreted as reflecting greater dissatisfaction with the sluggish progress of digital tax discussions.

The U.S. has already initiated procedures to establish grounds for retaliatory tariffs. On the 2nd, Lighthizer announced that under Section 301 of the Trade Act, an investigation would be conducted into whether the digital tax imposed or considered by nine countries?including the European Union (EU), the United Kingdom, Italy, Spain, Austria, Turkey, Brazil, the Czech Republic, India, and Indonesia?is unfair. Concerns are growing that a situation similar to last year’s July, when France passed a digital tax bill and the U.S. announced retaliatory tariffs on French imports in December, could recur.

Regarding Mnuchin’s letter, the French Ministry of Finance confirmed receipt and stated that it is coordinating a joint response with other EU member governments. Foreign media reported that they plan to send a reply to Mnuchin soon.

European countries are successively introducing their own digital taxes because discussions through the Organisation for Economic Co-operation and Development (OECD) are not progressing. In February, the OECD proposed a comprehensive plan to include not only IT companies but also manufacturers using digital marketing as subjects for digital tax, but it failed due to U.S. opposition. The U.S. argued that a 'safe harbor' should be introduced, allowing companies to choose between existing regulations and digital tax rules based on which is more favorable. The U.S. views major domestic IT companies such as Amazon, Google, Facebook, and Twitter as the primary targets of the digital tax and continues to pressure countries that have introduced or are considering introducing it.

This content was produced with the assistance of AI translation services.